Edgar Filing: SUNTRUST BANKS INC

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2007

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

Commission File Number 001-08918

SUNTRUST BANKS, INC.

(Exact name of registrant as specified in its charter)

Georgia

58-1575035

(State or other jurisdiction

of incorporation or organization)

(I.R.S. Employer

Identification No.)

303 Peachtree Street, N.E., Atlanta, Georgia 30308

(Address of principal executive offices) (Zip Code)

(404) 588-7711

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.

Yes ¨ No x

At July 31, 2007, 349,294,880 shares of the Registrant’s Common Stock, $1.00 par value, were outstanding.


			Page
PART I FINANCIAL INFORMATION

	Item 1.	Financial Statements (Unaudited)	3
		Consolidated Statements of Income	3
		Consolidated Balance Sheets	4
		Consolidated Statements of Shareholders’ Equity	5
		Consolidated Statements of Cash Flow	6
		Notes to Consolidated Financial Statements	7

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	37
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	88
	Item 4.	Controls and Procedures	89

PART II OTHER INFORMATION

	Item 1.	Legal Proceedings	89
	Item 1A.	Risk Factors	89
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	92
	Item 3.	Defaults Upon Senior Securities	92
	Item 4.	Submission of Matters to a Vote of Security Holders	92
	Item 5.	Other Information	93
	Item 6.	Exhibits	93

SIGNATURES			94

PART I - FINANCIAL INFORMATION

The following unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X, and accordingly do not include all of the information and footnotes required by generally accepted accounting principles in the United States for complete financial statements. However, in the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary to comply with Regulation S-X have been included. Operating results for the three and six months ended June 30, 2007 are not necessarily indicative of the results that may be expected for the full year 2007.

Item 1. FINANCIAL STATEMENTS (UNAUDITED)

SunTrust Banks, Inc.

Consolidated Statements of Income


	Three Months Ended June 30		Six Months Ended June 30
(In thousands, except per share data)	2007	2006	2007	2006
Interest Income
Interest and fees on loans	$1,977,571	$1,910,834	$3,970,788	$3,676,719
Interest and fees on loans held for sale	200,403	163,693	374,131	341,575
Interest and dividends on securities available for sale
Taxable interest	137,324	263,761	214,703	514,600
Tax-exempt interest	10,701	9,639	21,433	19,078
Dividends¹	30,388	31,090	61,664	63,337
Interest on funds sold and securities purchased under agreements to resell	13,235	15,199	26,124	27,161
Interest on deposits in other banks	345	318	750	2,736
Trading account interest	173,903	28,553	402,334	56,594

Total interest income	2,543,870	2,423,087	5,071,927	4,701,800

Interest Expense
Interest on deposits	931,241	844,278	1,887,134	1,549,888
Interest on funds purchased and securities sold under agreements to repurchase	126,614	133,565	267,346	245,773
Interest on other short-term borrowings	32,658	18,033	58,675	43,214
Interest on long-term debt	258,073	258,468	498,929	515,141

Total interest expense	1,348,586	1,254,344	2,712,084	2,354,016

Net Interest Income	1,195,284	1,168,743	2,359,843	2,347,784
Provision for loan losses	104,680	51,759	161,121	85,162

Net interest income after provision for loan losses	1,090,604	1,116,984	2,198,722	2,262,622

Noninterest Income
Service charges on deposit accounts	196,844	191,645	385,879	377,830
Trust and investment management income	164,620	175,811	338,938	343,900
Retail investment services	71,785	58,441	135,328	113,430
Other charges and fees	118,358	113,948	236,495	226,330
Investment banking income	61,999	60,481	112,156	112,296
Trading account profits and commissions	16,437	46,182	106,638	83,057
Card fees	68,580	61,941	132,775	118,544
Mortgage production related income	64,322	56,579	55,667	119,616
Mortgage servicing related income	45,527	31,401	80,930	76,111
Gain on sale upon merger of Lighthouse Partners	-	-	32,340	-
Other noninterest income	109,738	73,082	179,950	149,799
Net securities gains	236,412	5,858	236,432	5,962

Total noninterest income	1,154,622	875,369	2,033,528	1,726,875

Noninterest Expense
Employee compensation	608,834	572,984	1,161,203	1,129,514
Employee benefits	101,779	116,089	248,410	264,524
Outside processing and software	100,730	98,447	200,406	193,339
Net occupancy expense	84,650	81,710	170,907	162,754
Equipment expense	53,823	48,107	103,232	97,555
Marketing and customer development	43,326	49,378	89,031	92,024
Amortization of intangible assets	24,904	25,885	48,446	53,130
Other noninterest expense	233,148	221,493	465,556	447,744

Total noninterest expense	1,251,194	1,214,093	2,487,191	2,440,584

Income before provision for income taxes	994,032	778,260	1,745,059	1,548,913
Provision for income taxes	312,601	234,258	542,332	473,384

Net income	681,431	544,002	1,202,727	1,075,529
Preferred stock dividends	7,519	-	14,882	-

Net Income Available to Common Shareholders	$673,912	$544,002	$1,187,845	$1,075,529

Net income per average common share
Diluted	$1.89	$1.49	$3.33	$2.96
Basic	1.91	1.51	3.37	2.98
Average common shares - diluted	356,008	364,391	356,608	363,917
Average common shares - basic	351,987	361,267	352,713	360,604
¹ Includes dividends on common stock of The Coca-Cola Company	$14,852	$14,962	$31,234	$29,925
See notes to Consolidated Financial Statements (unaudited).

SunTrust Banks, Inc.

Consolidated Balance Sheets


	As of
(Dollars in thousands)	June 30 2007		December 31 2006
Assets
Cash and due from banks	$4,254,430		$4,235,889
Interest-bearing deposits in other banks	25,991		21,810
Funds sold and securities purchased under agreements to resell	1,143,995		1,050,046
Trading assets	13,044,972		2,777,629
Securities available for sale¹	14,725,957		25,101,715
Loans held for sale (loans at fair value: $6,494,602 at June 30, 2007)	12,474,932		11,790,122
Loans	118,787,722		121,454,333
Allowance for loan and lease losses	(1,050,362	)	(1,044,521	)

Net loans	117,737,360		120,409,812
Premises and equipment	1,930,551		1,977,412
Goodwill	6,897,050		6,889,860
Other intangible assets	1,290,460		1,181,984
Customers’ acceptance liability	27,879		15,878
Other assets	6,760,795		6,709,452

Total assets	$180,314,372		$182,161,609


Liabilities and Shareholders’ Equity
Noninterest-bearing consumer and commercial deposits	$22,725,654		$22,887,176
Interest-bearing consumer and commercial deposits	75,096,318		76,888,712

Total consumer and commercial deposits	97,821,972		99,775,888
Brokered deposits (CDs at fair value: $282,889 as of June 30, 2007; $97,370 as of December 31, 2006)	16,659,978		18,150,059
Foreign deposits	8,408,752		6,095,682

Total deposits	122,890,702		124,021,629
Funds purchased	3,405,459		4,867,591
Securities sold under agreements to repurchase	6,081,096		6,950,426
Other short-term borrowings	2,083,518		2,062,636
Long-term debt (debt at fair value: $6,757,188 as of June 30, 2007)	20,604,933		18,992,905
Acceptances outstanding	27,879		15,878
Trading liabilities	2,156,279		1,634,097
Other liabilities	5,695,653		5,802,841

Total liabilities	162,945,519		164,348,003


Preferred stock, no par value (liquidation preference of $100,000 per share)	500,000		500,000
Common stock, $1.00 par value	370,578		370,578
Additional paid in capital	6,589,387		6,627,196
Retained earnings	10,739,449		10,541,152
Treasury stock, at cost, and other	(1,751,449	)	(1,151,269	)
Accumulated other comprehensive income	920,888		925,949

Total shareholders’ equity	17,368,853		17,813,606

Total liabilities and shareholders’ equity	$180,314,372		$182,161,609

Common shares outstanding	349,052,800		354,902,566
Common shares authorized	750,000,000		750,000,000
Preferred shares outstanding	5,000		5,000
Preferred shares authorized	50,000,000		50,000,000
Treasury shares of common stock	21,525,598		15,675,832

¹ Includes net unrealized gains on securities available for sale	$2,035,623		$2,103,362
See notes to Consolidated Financial Statements (unaudited).

SunTrust Banks, Inc.

Consolidated Statements of Shareholders’ Equity


(Dollars and shares in thousands)	Preferred Stock	Common Shares Outstanding		Common Stock	Additional Paid in Capital		Retained Earnings		Treasury Stock and Other¹		Accumulated Other Comprehensive Income		Total
Balance, January 1, 2006	$-	361,984		$370,578	$6,761,684		$9,310,978		($493,936	)	$938,091		$16,887,395
Net income	-	-		-	-		1,075,529		-		-		1,075,529
Other comprehensive income:
Change in unrealized gains (losses) on derivatives, net of taxes	-	-		-	-		-		-		6,317		6,317
Change in unrealized gains (losses) on securities, net of taxes	-	-		-	-		-		-		(168,712	)	(168,712	)
Change in accumulated other comprehensive income related to employee benefit plans	-	-		-	-		-		-		824		824

Total comprehensive income	-	-		-	-		-		-		-		913,958
Common stock dividends, $1.22 per share	-	-		-	-		(443,352	)	-		-		(443,352	)
Exercise of stock options and stock compensation element expense	-	1,657		-	7,834		-		102,894		-		110,728
Acquisition of treasury stock	-	(1,535	)	-	-		-		(108,622	)	-		(108,622	)
Performance and restricted stock activity	-	956		-	(10,968	)	-		8,167		-		(2,801	)
Amortization of compensation element of performance and restricted stock	-	-		-	-		-		7,154		-		7,154
Issuance of stock for employee benefit plans	-	864		-	(8,837	)	-		53,297		-		44,460
Issuance of stock for BancMortgage contingent consideration	-	203		-	2,216		-		12,784		-		15,000

Balance, June 30, 2006	$-	364,129		$370,578	$6,751,929		$9,943,155		($418,262	)	$776,520		$17,423,920


Balance, January 1, 2007	$500,000	354,903		$370,578	$6,627,196		$10,541,152		($1,151,269	)	$925,949		$17,813,606
Net income	-	-		-	-		1,202,727		-		-		1,202,727
Other comprehensive income:
Change in unrealized gains (losses) on derivatives, net of taxes	-	-		-	-		-		-		(75,256	)	(75,256	)
Change in unrealized gains (losses) on securities, net of taxes	-	-		-	-		-		-		(191,381	)	(191,381	)
Change in accumulated other comprehensive income related to employee benefit plans	-	-		-	-		-		-		34,495		34,495

Total comprehensive income													970,585
Common stock dividends, $1.46 per share	-	-		-	-		(518,929	)	-		-		(518,929	)
Preferred stock dividends	-	-		-	-		(14,882	)	-		-		(14,882	)
Exercise of stock options and stock compensation element expense	-	2,227		-	(4,103	)	-		166,146		-		162,043
Acquisition of treasury stock	-	(9,296	)	-	(47,163	)	-		(806,223	)	-		(853,386	)
Performance and restricted stock activity	-	780		-	9,189		(2,496	)	(8,953	)	-		(2,260	)
Amortization of compensation element of performance and restricted stock	-	-		-	-		-		15,971		-		15,971
Issuance of stock for employee benefit plans	-	433		-	4,205		-		32,468		-		36,673
Adoption of SFAS No. 159	-	-		-	-		(388,604	)	-		147,374		(241,230	)
Adoption of SFAS No. 157	-	-		-	-		(10,943	)	-		-		(10,943	)
Adoption of FIN 48	-	-		-	-		(41,844	)	-		-		(41,844	)
Adoption of FSP FAS 13-2	-	-		-	-		(26,273	)	-		-		(26,273	)
Pension plan changes and resulting remeasurement	-	-		-	-		-		-		79,707		79,707
Other	-	6		-	63		(459	)	411		-		15

Balance, June 30, 2007	$500,000	349,053		$370,578	$6,589,387		$10,739,449		($1,751,449	)	$920,888		$17,368,853

1	Balance at June 30, 2007 includes $1,638,106 for treasury stock and $113,343 for compensation element of restricted stock.

Balance at June 30, 2006 includes $349,370 for treasury stock and $68,892 for compensation element of restricted stock.

See notes to Consolidated Financial Statements (unaudited).

SunTrust Banks, Inc.

Consolidated Statements of Cash Flow


	Six Months Ended June 30
(Dollars in thousands)	2007		2006
Cash Flows from Operating Activities:
Net income	$1,202,727		$1,075,529
Adjustments to reconcile net income to net cash provided by operating activities:
Net gain on sale upon merger of Lighthouse Partners	(32,340	)	-
Depreciation, amortization and accretion	396,336		394,128
Gain on sale of mortgage servicing rights	(11,650	)	(41,720	)
Origination of mortgage servicing rights	(335,096	)	(243,781	)
Provisions for loan losses and foreclosed property	166,149		86,614
Amortization of compensation element of performance and restricted stock	15,971		7,154
Stock option compensation	12,220		13,119
Excess tax benefits from stock-based compensation	(10,238	)	(16,471	)
Net securities gains	(236,432	)	(5,962	)
Net gain on sale of assets	(22,413	)	(26,462	)
Originated and purchased loans held for sale	(29,644,677	)	(23,920,775	)
Sales and securitizations of loans held for sale	30,122,885		25,813,626
Net (increase) decrease in other assets	(1,513,218	)	111,140
Net increase (decrease) in other liabilities	246,960		(1,684	)

Net cash provided by operating activities	357,184		3,244,455


Cash Flows from Investing Activities:
Seix contingent consideration payout	(42,287	)	-
Proceeds from maturities, calls and repayments of securities available for sale	524,472		1,724,250
Proceeds from sales of securities available for sale	983,546		591,800
Purchases of securities available for sale	(6,270,734	)	(2,524,434	)
Proceeds from maturities, calls and repayments of trading securities	3,501,450		-
Proceeds from sales of trading securities	15,116,736		-
Purchases of trading securities	(11,922,354	)	-
Loan originations net of principal collected	(3,827,841	)	(5,931,097	)
Proceeds from sale of loans	4,956,475		1,147,170
Proceeds from sale of mortgage servicing rights	127,306		125,087
Capital expenditures	(63,778	)	(155,496	)
Proceeds from the sale of other assets	42,675		26,885

Net cash provided by (used) in investing activities	3,125,666		(4,995,835	)


Cash Flows from Financing Activities:
Net (decrease) increase in consumer and commercial deposits	(1,950,918	)	1,474,709
Net increase in foreign and brokered deposits	822,989		1,329,920
Net (decrease) increase in funds purchased and other short-term borrowings	(2,310,580	)	812,987
Proceeds from the issuance of long-term debt	1,794,320		1,589
Repayment of long-term debt	(495,143	)	(2,554,091	)
Proceeds from the issuance of preferred stock	290		-
Proceeds from the exercise of stock options	149,822		102,955
Acquisition of treasury stock	(853,386	)	(108,622	)
Excess tax benefits from stock-based compensation	10,238		16,471
Common and preferred dividends paid	(533,811	)	(443,352	)

Net cash (used in) provided by financing activities	(3,366,179	)	632,566

Net increase (decrease) in cash and cash equivalents	116,671		(1,118,814	)
Cash and cash equivalents at beginning of year	5,307,745		6,305,606

Cash and cash equivalents at end of period	$5,424,416		$5,186,792


Supplemental Disclosures:
Interest paid	$2,699,431		$2,331,670
Income taxes paid	288,250		345,340
Income taxes refunded	(9,931	)	(11,650	)
Securities transferred from available for sale to trading	15,374,452		-
Loans transferred from loans to loans held for sale	4,054,246		-

See notes to consolidated financial statements (unaudited).

Notes to Consolidated Financial Statements (Unaudited)

Note 1-Accounting Policies

Principles of Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of SunTrust Banks, Inc. (“SunTrust” or “the Company”), its majority-owned subsidiaries, and variable interest entities (“VIEs”) where the Company is the primary beneficiary. All significant intercompany accounts and transactions have been eliminated. Results of operations of companies purchased are included from the date of acquisition. Results of operations associated with companies or net assets sold are included through the date of disposition. Assets and liabilities of purchased companies are generally stated at estimated fair values at the date of acquisition. Investments in companies which are not VIEs, or where SunTrust is not the primary beneficiary in a VIE, that the Company owns a voting interest of 20% to 50%, and for which it may have significant influence over operating and financing decisions are accounted for using the equity method of accounting. These investments are included in other assets, and the Company’s proportionate share of income or loss is included in noninterest income.

The consolidated interim financial statements of SunTrust are unaudited. The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“US GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could vary from these estimates. Certain reclassifications may be made to prior period amounts to conform to the current period presentation. These financial statements should be read in conjunction with the Annual Report on Form 10-K for the year ended December 31, 2006. Except for accounting policies recently adopted as described below, there have been no significant changes to the Company’s Accounting Policies as disclosed in the Annual Report on Form 10-K for the year ended December 31, 2006.

Accounting Policies Recently Adopted and Pending Accounting Pronouncements

In March 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”), No. 156, “Accounting for Servicing of Financial Assets – an amendment of FASB Statement No. 140.” SFAS No. 156 requires that all separately recognized servicing rights be initially measured at fair value. Subsequently, an entity may either recognize its servicing rights at fair value or amortize its servicing rights over an estimated life and assess for impairment at least quarterly. SFAS No. 156 also amends how gains and losses are computed in transfers or securitizations that qualify for sale treatment in which the transferor retains the right to service the transferred financial assets. Additional disclosures for all separately recognized servicing rights are also required. In accordance with SFAS No. 156, SunTrust is initially measuring servicing rights at fair value and will continue to subsequently amortize its servicing rights based on estimated future net servicing income with at least quarterly assessments for impairment. The Company adopted the provisions of SFAS No. 156 effective January 1, 2007. The adoption did not have a material impact on the Company’s financial position and results of operations.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which clarifies how companies should use fair value measurements in accordance with US GAAP for recognition and disclosure. SFAS No. 157 establishes a common definition of fair value and a framework for measuring fair value under US GAAP, along with expanding disclosures about fair value measurements to eliminate differences in current practice that exist in measuring fair value under the existing accounting standards. The definition of fair value in SFAS No. 157 retains the notion of exchange price; however, it focuses on the price that would be received to sell the asset or paid to transfer the liability (i.e., an exit price), rather than the price that would be paid to acquire the asset or received to assume the liability (i.e., an entry price). Under SFAS No. 157, a fair value measure should reflect all of the assumptions that market participants would use in pricing the asset or liability, including assumptions about the risk inherent in a particular valuation technique, the effect of a restriction on the sale or use of an asset, and the risk of nonperformance. To increase consistency and comparability in fair value measures, SFAS No. 157 establishes a three-level fair value hierarchy to prioritize the inputs used in valuation techniques between observable inputs that reflect quoted prices in active markets, inputs other than quoted prices with observable market data, and unobservable data (e.g., a company’s own data). SFAS No. 157 requires disclosures detailing the extent to which companies measure assets and liabilities at fair value, the methods and assumptions used to measure fair value, and the effect of fair value measurements on earnings. In February 2007, the FASB issued SFAS No.159, “The Fair Value Option for Financial Assets and Financial Liabilities.” SFAS No. 159 permits companies to elect on an instrument-by-instrument basis to fair value certain financial assets and financial liabilities with changes in fair value recognized in earnings as they occur. The election to fair value is generally irrevocable. SFAS No. 157 and SFAS No. 159 are effective January 1, 2008 for calendar year companies with the option to early adopt as of January 1, 2007. The Company elected to early adopt the provisions of these statements effective January 1, 2007. See Note 12, “Fair Value” to the Consolidated Financial Statements for related disclosures.

Notes to Consolidated Financial Statements (Unaudited) - Continued

In July 2006, the FASB issued FASB Interpretation No. (“FIN”) 48, “Accounting for Uncertainty in Income Taxes,” an interpretation of SFAS No. 109, “Accounting for Income Taxes.” FIN 48 provides a single model to address accounting for uncertainty in tax positions by prescribing a minimum recognition threshold a tax benefit can be recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company adopted FIN 48 effective January 1, 2007. The cumulative effect adjustment recorded upon adoption resulted in an increase to unrecognized tax benefits of $46.0 million, a reduction to opening retained earnings of $41.9 million, and an increase to goodwill of $4.1 million. Additionally, in connection with its adoption of FIN 48, the Company elected to classify interest and penalties related to unrecognized tax positions as a component of income tax expense.

In July 2006, the FASB issued FASB Staff Position (“FSP”) FAS 13-2, “Accounting for a Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease Transaction” (“FSP FAS 13-2”). The Internal Revenue Service (“IRS”) has challenged companies on the timing and amount of tax deductions generated by certain leveraged lease transactions, commonly referred to as Lease-In, Lease-Out transactions (“LILOs”) and Sale-In, Lease-Out transactions (“SILOs”). As a result, some companies have settled with the IRS, resulting in a change to the estimated timing of cash flows and income on these types of leases. The Company believes that its tax treatment of certain investments in LILO and SILO leveraged lease transactions is appropriate based on its interpretation of the tax regulations and legal precedents; however, a court or other judicial authority could disagree. FSP FAS 13-2 indicates that a change in the timing or projected timing of the realization of tax benefits on a leveraged lease transaction requires the lessor to recalculate that lease. The Company adopted FSP FAS 13-2 effective January 1, 2007. The one-time after tax reduction to opening retained earnings resulting from adoption was $26.3 million, which will be accreted into income on an effective yield basis over the remaining terms of the affected leases in accordance with FSP FAS 13-2.

In September 2006, the Emerging Issues Task Force (“EITF”) reached a consensus on EITF Issue No. 06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements.” The guidance clarifies the accounting for endorsement split-dollar life insurance arrangements that provide a benefit to an employee that is not limited to the employee’s active service period and concluded that an employer should recognize a liability for future benefits based on the substantive agreement with the employee since the postretirement benefit obligation is not effectively settled through the purchase of the endorsement split-dollar life insurance policy. Also, in March 2007, the EITF reached a consensus on EITF Issue No. 06-10, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Collateral Assignment Split-Dollar Life Insurance Arrangements.” This Issue clarifies the accounting for collateral split-dollar life insurance arrangements that provide a benefit to an employee that extends into postretirement periods and clarifies the accounting for assets related to collateral split-dollar insurance assignment arrangements. This Issue requires that an employer recognize a liability for future benefits based on the substantive agreement with the employee and concluded that the asset recorded should also be measured based on the nature and substance of the collateral assignment split-dollar life insurance arrangement. EITF No. 06-4 and EITF No. 06-10 are effective for SunTrust beginning January 1, 2008 and any resulting adjustment will be recorded as a change in accounting principle through a cumulative effect adjustment to equity. SunTrust is currently evaluating the impact these Issues will have on its financial position and results of operations.

Notes to Consolidated Financial Statements (Unaudited) - Continued

In September 2006, the EITF reached a consensus on EITF Issue No. 06-5, “Accounting for Purchases of Life Insurance – Determining the Amount That Could Be Realized in Accordance with FASB Technical Bulletin No. 85-4, Accounting for Purchases of Life Insurance.” This Issue clarifies how a company should determine “the amount that could be realized” from a life insurance contract, which is the measurement amount for the asset in accordance with Technical Bulletin 85-4, and requires policyholders to determine the amount that could be realized under a life insurance contract assuming individual policies are surrendered, unless all policies are required to be surrendered as a group. This EITF became effective for the Company on January 1, 2007 and the adoption did not have an impact on its financial position and results of operations.

Note 2-Acquisitions/Dispositions

In the second quarter of 2007 AMA Holdings, Inc. (“AMA Holdings”), a 100%-owned subsidiary of SunTrust, exercised its right to call 0.4 million minority member owned interests in AMA, LLC, resulting in $5.2 million of goodwill and $1.2 million of other intangibles related to client relationships, which were both deductible for tax purposes. An additional 2.5 million member interests were issued to employees in the second quarter of 2007. Effective March 27, 2007, the 1,228 outstanding member interests of AMA, LLC were converted into 10 million member interests, a split of 8,141.7975 to one. On January 31, 2007, AMA Holdings exercised its right to call 4 minority member owned interests in AMA, LLC, resulting in $0.5 million of goodwill and $0.1 million of other intangibles related to client relationships which were both deductible for tax purposes. On January 28, 2006, AMA Holdings exercised its right to call 98 minority member owned interests in AMA, LLC, resulting in $6.9 million of goodwill and $4.5 million of other intangibles related to client relationships which were both deductible for tax purposes.

As of June 30, 2007, AMA Holdings owned 7.9 million member interests, or 64%, and 4.6 million member interests, or 36%, of AMA, LLC were owned by employees. The employee interests are subject to certain vesting requirements. If the employee interests vest, they may be called by AMA Holdings (and some of the interests may be put to AMA Holdings by the employees) at certain dates in the future in accordance with the applicable plan or agreement pursuant to which they were granted.

On March 30, 2007, SunTrust merged its wholly-owned subsidiary, Lighthouse Partners, with and into Lighthouse Investment Partners, LLC, the entity that was serving as the sub-advisor to Lighthouse Partners and the Lighthouse Partners’ managed funds. SunTrust holds a 24.9% minority interest in the combined entity and it also has a revenue sharing arrangement with Lighthouse Investment Partners. This merger resulted in a gain of $32.3 million, which was recorded in the Consolidated Statements of Income as a component of noninterest income. This transaction resulted in a net increase in intangible assets of $24.1 million and a decrease in goodwill of $48.5 million. On July 24, 2007, SunTrust signed a “merger implementation agreement” with HFA Holdings Ltd., an Australian fund manager, to sell Lighthouse Investment Partners, the combined entity to HFA Holdings Ltd. This agreement is essentially a non-binding letter of intent, and HFA Holdings Ltd.’s obligations are conditioned upon obtaining financing, among other things. Under the current terms of this agreement, SunTrust is expected to receive approximately $155 million cash, upon closing, for its interest in Lighthouse Investment Partners, which exceeds the carrying value of its investment.

Notes to Consolidated Financial Statements (Unaudited) - Continued

On March 12, 2007, SunTrust paid $7.0 million in cash to the former owners of Prime Performance, Inc. (“Prime Performance”), a company acquired by National Commerce Financial Corporation (“NCF”) in March 2004. NCF and its subsidiaries were purchased by SunTrust in October 2004. Payment of the contingent consideration was made pursuant to the original purchase agreement between NCF and the former owners of Prime Performance and was considered a tax-deductible adjustment to goodwill. The payment made on March 12, 2007 fulfilled all of the Company’s obligations to the former owners of Prime Performance. On April 4, 2006, SunTrust paid $1.3 million in cash to the former owners of Prime Performance pursuant to this same agreement.

On February 23, 2007, SunTrust paid $42.3 million to the former owners of Seix Investment Advisors, Inc. (“Seix”) that was contingent on the performance of Seix. This transaction resulted in $42.3 million of goodwill that was deductible for tax purposes.

On February 13, 2007, SunTrust paid $1.4 million to the former owners of SunAmerica Mortgage (“SunAmerica”) that was pursuant to the original purchase agreement and contingent on the performance of SunAmerica. This transaction resulted in $1.4 million of goodwill that was deductible for tax purposes. On March 10, 2006, SunTrust paid $3.9 million to the former owners of SunAmerica that was contingent on the performance of SunAmerica. This resulted in $3.9 million of goodwill that was deductible for tax purposes.

On March 31, 2006, SunTrust sold its 49% interest in First Market Bank, FSB (“First Market”). The sale of its approximately $79 million net investment resulted in a gain of $3.6 million which was recorded in other income in the Consolidated Statements of Income.

On March 30, 2006, SunTrust issued $15.0 million of common stock, or 202,866 shares, and $7.5 million in cash as contingent consideration to the former owners of BancMortgage Financial Corporation, a company acquired by NCF in 2002. NCF and its subsidiaries were purchased by SunTrust in October 2004. Payment of the contingent consideration was made pursuant to the original purchase agreement between NCF and BancMortgage and was considered an adjustment to goodwill.

On March 17, 2006, SunTrust acquired 11 Florida Wal-Mart banking branches from Community Bank of Florida (“CBF”), based in Homestead, Florida. The Company acquired approximately $5.1 million in assets and $56.4 million in deposits and related liabilities. The transaction resulted in $1.1 million of other intangible assets which were deductible for tax purposes.

Notes to Consolidated Financial Statements (Unaudited) - Continued

Note 3-Allowance for Loan and Lease Losses

Activity in the allowance for loan and lease losses is summarized in the table below:


	Three Months Ended June 30				% Change		Six Months Ended June 30				% Change
(Dollars in thousands)	2007		2006		% Change		2007		2006		% Change
Balance at beginning of period	$1,033,939		$1,039,247		(0.5	)	$1,044,521		$1,028,128		1.6
Allowance associated with loans at fair value ¹	-		-		-		(4,100	)	-		(100.0	)
Provision for loan losses	104,680		51,759		102.2		161,121		85,162		89.2
Loan charge-offs	(111,722	)	(55,649	)	100.8		(196,669	)	(109,915	)	78.9
Loan recoveries	23,465		26,505		(11.5	)	45,489		58,487		(22.2	)

Balance at end of period	$1,050,362		$1,061,862		(1.1	)	$1,050,362		$1,061,862		(1.1	)

¹	Amount removed from the allowance for loan losses related to the Company’s election to record $4.1 billion of residential mortgages at fair value.

Note 4-Intangible Assets

Goodwill

Goodwill is tested for impairment on an annual basis and as events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The Company completed its 2006 annual review as of September 30, 2006, and determined there was no impairment of goodwill as of this date. No events or circumstances have occurred during the year that would more likely than not reduce the fair value of a reporting unit below its carrying value. In the fourth quarter, the Company will complete its 2007 annual review as of September 30, 2007. The changes in the carrying amount of goodwill by reportable segment for the six months ended June 30, 2007 and 2006 are as follows:


(Dollars in thousands)	Retail		Commercial		Corporate and Investment Banking		Mortgage		Wealth and Investment Management		Corporate Other and Treasury		Total
Balance, January 1, 2006	$4,873,158		$1,261,363		$147,470		$247,985		$297,857		$7,335		$6,835,168
NCF purchase adjustments ¹	26,473		3,480		124		571		218		(481	)	30,385
BancMortgage contingent consideration	-		-		-		22,500		-		-		22,500
Purchase of AMA, LLC minority shares	-		-		-		-		6,930		-		6,930
SunAmerica contingent consideration	-		-		-		3,906		-		-		3,906
Prime Performance contingent consideration	1,333		-		-		-		-		-		1,333

Balance, June 30, 2006	$4,900,964		$1,264,843		$147,594		$274,962		$305,005		$6,854		$6,900,222


Balance, January 1, 2007	$4,891,473		$1,262,174		$147,469		$274,524		$307,390		$6,830		$6,889,860
NCF purchase adjustments ¹	(3,548	)	(980	)	(46	)	(161	)	(80	)	(9	)	(4,824	)
Purchase of AMA, LLC minority shares	-		-		-		-		5,664		-		5,664
SunAmerica contingent consideration	-		-		-		1,368		-		-		1,368
Prime Performance contingent consideration	7,034		-		-		-		-		-		7,034
Seix contingent consideration	-		-		-		-		42,287		-		42,287
Sale upon merger of Lighthouse Partners	-		-		-		-		(48,474	)	-		(48,474	)
FIN 48 adoption adjustment	3,042		840		39		138		69		7		4,135

Balance, June 30, 2007	$4,898,001		$1,262,034		$147,462		$275,869		$306,856		$6,828		$6,897,050

US GAAP requires net assets acquired in a business combination to be recorded at their estimated fair value. Adjustments to the estimated fair value of acquired assets and liabilities generally occur within one year of the acquisition. However, tax related adjustments are permitted to extend beyond one year due to the degree of estimation and complexity. The purchase adjustments in the above table represent adjustments to the estimated fair value of the acquired net assets within the guidelines under US GAAP.

Notes to Consolidated Financial Statements (Unaudited) - Continued

Mortgage Servicing Rights (“MSRs”)

MSRs represent the discounted present value of future net cash flows that are expected to be received from the mortgage servicing portfolio. The value of the MSRs asset is based upon the estimated future net cash flows from servicing mortgage loans and is highly dependent upon service fees and the assumed prepayment speed of the mortgage servicing portfolio. Future expected net cash flows from servicing a loan in the mortgage servicing portfolio would not be realized if the loan pays off earlier than anticipated. Accordingly, prepayment risk subjects the MSRs to impairment risk. The Company does not specifically hedge the MSRs portfolio for the potential impairment risk; however, it does employ a business strategy using the natural counter-cyclicality of servicing and production to mitigate earnings volatility, and may employ other financial instruments, including economic hedges, to manage the performance of the business. As of June 30, 2007 and December 31, 2006, the fair values of MSRs were $1.4 billion and $1.1 billion, respectively. Contractually specified mortgage servicing fees and late fees earned for the three and six months ended June 30, 2007 and 2006 were $77.9 million and $152.0 million, and $58.0 million and $120.1 million, respectively. These amounts are reported in mortgage servicing related income in the Consolidated Statements of Income. During the first six months of 2007, the Company sold $115.7 million of mortgage servicing rights compared to $90.7 million for the first six months of 2006. For the three and six months ended June 30, 2007 the sale/securitization of servicing rights resulted in a gain of $11.7 million, compared to $17.3 million and $41.7 million for the three and six months ended June 30, 2006, respectively. Since SunTrust does not discretely hedge its MSRs portfolio, the Company actively manages the size of the MSR and evaluates the market value in relation to holding the MSRs.

Other Intangible Assets

The changes in the carrying amounts of other intangible assets for the six months ended June 30, 2007 and 2006 are as follows:


(Dollars in thousands)	Core Deposit Intangible		Mortgage Servicing Rights		Other		Total
Balance, January 1, 2006	$324,743		$657,604		$140,620		$1,122,967
Amortization	(43,632	)	(90,343	)	(9,498	)	(143,473	)
Servicing rights originated	-		243,781		-		243,781
Community Bank of Florida branch acquisition	1,085		-		-		1,085
Reclass investment to trading assets	-		-		(1,050	)	(1,050	)
Purchase of AMA, LLC minority shares	-		-		4,473		4,473
Sale/securitization of mortgage servicing rights	-		(90,668	)	-		(90,668	)
Issuance of noncompete agreement	-		-		4,231		4,231

Balance, June 30, 2006	$282,196		$720,374		$138,776		$1,141,346


Balance, January 1, 2007	$241,614		$810,509		$129,861		$1,181,984
Amortization	(36,040	)	(87,937	)	(12,407	)	(136,384	)
Servicing rights originated	-		335,096		-		335,096
Intangible assets obtained from sale upon merger of Lighthouse Partners, net	-		-		24,142		24,142
Purchase of AMA, LLC minority shares	-		-		1,278		1,278
Sale of mortgage servicing rights	-		(115,656	)	-		(115,656	)

Balance, June 30, 2007	$205,574		$942,012		$142,874		$1,290,460

Notes to Consolidated Financial Statements (Unaudited) - Continued

The estimated amortization expense for intangible assets, excluding amortization of mortgage servicing rights, for the full year 2007 and the subsequent years is as follows:


(Dollars in thousands)	Core Deposit Intangible	Other	Total
Full year 2007	$68,959	$27,142	$96,101
2008	53,616	22,428	76,044
2009	36,529	16,347	52,876
2010	28,781	12,632	41,413
2011	22,552	9,983	32,535
Thereafter	31,177	66,749	97,926

Total	$241,614	$155,281	$396,895

Note 5-Securitizations

The Company has sold or securitized various asset classes, including student loans, residential mortgages, commercial loans, trust preferred securities, and asset-backed debt securities, that were either originated by the Company or purchased in the market and warehoused prior to the sale or securitization. These securitization activities involve selling all or a portion of a pool of assets to Company-sponsored or third-party securitization vehicles and may result in the Company retaining residual or other interests. Interests that continue to be held by the Company as a result of these transactions, excluding servicing assets, if any, are typically recorded as securities available for sale or trading assets at their allocated carrying amounts based on the relative fair value at time of securitization for transactions closed prior to January 1, 2007 and at fair value for those closed thereafter. Gains or losses upon securitization as well as structuring fees, servicing fees and collateral management fees are recorded in noninterest income.

In June 2007, the Company sold trust preferred securities into a securitization in exchange for proceeds of $158.8 million. In addition, the Company received $4.5 million in structuring fees related to the transaction. The Company did not retain any interests in the securitization.

Additionally in June 2007, the Company sold residential mortgage loans into a securitization in exchange for proceeds of $361.5 million. A pre-tax gain of $0.4 million was recognized as a result of the sale of these loans. In addition to certain rated, debt securities, the Company also holds residual interests in the securitization that are classified on the Consolidated Balance Sheets as trading securities with a fair value of $14.4 million at June 30, 2007.

In May 2007, the Company was involved in a securitization transaction of commercial loans and bonds. The Company received $1.0 million in structuring fees and holds a residual interest that is accounted for as a trading security with a fair value of $3.0 million at June 30, 2007.

In March 2007, the Company sold a portion of commercial loans in a structured asset sale in exchange for proceeds of $1.9 billion. The Company recognized a pre-tax gain of $4.9 million and holds a residual interest that is accounted for as a trading security with a fair value of $57.3 million at June 30, 2007.

In March 2007, the Company sold commercial mortgage loans into a securitization in exchange for proceeds of $195.7 million. A pre-tax gain of $2.1 million was recognized as a result of the sale of these loans. The Company did not retain any interests in the securitization.

Notes to Consolidated Financial Statements (Unaudited) - Continued

The following table shows the fair value at June 30, 2007 of the residual interests that the Company continues to hold in its securitization transactions.


(Dollars in millions) Securitized/Sold	Net Proceeds	Fair Value of Interests Held by the Company at June 30, 2007	Classified As
Commercial loans and bonds	$1,054.9	$25.3	Trading Asset
Corporate loans	1,857.5	57.3	Trading Asset
Debt securities	472.6	1.1	Trading Asset
Mortgage loans	361.5	14.4	Trading Asset
Student loans	750.1	19.8	Trading Asset

Note 6-Earnings per Share Reconciliation

Net income is the same in the calculation of basic and diluted EPS. There were no antidilutive shares for the quarter ended June 30, 2007. Equivalent shares of 0.3 million related to stock options for the period ended June 30, 2006 were excluded from the computation of diluted EPS because they would have been antidilutive. A reconciliation of the difference between average basic common shares outstanding and average diluted common shares outstanding for the three and six months ended June 30, 2007 and 2006 is included in the following table:


	Three Months Ended June 30		Six Months Ended June 30
(In thousands, except per share data)	2007	2006	2007	2006
Diluted
Net income	$681,431	$544,002	$1,202,727	$1,075,529
Preferred stock dividends	7,519	-	14,882	-

Net income available to common shareholders	$673,912	$544,002	$1,187,845	$1,075,529


Average basic common shares	351,987	361,267	352,713	360,604
Effect of dilutive securities:
Stock options	3,056	1,988	2,944	2,064
Performance and restricted stock	965	1,136	951	1,249

Average diluted common shares	356,008	364,391	356,608	363,917

Earnings per average common share - diluted	$1.89	$1.49	$3.33	$2.96


Basic
Net income	$681,431	$544,002	$1,202,727	$1,075,529
Preferred stock dividends	7,519	-	14,882	-

Net income available to common shareholders	$673,912	$544,002	$1,187,845	$1,075,529

Average basic common shares	351,987	361,267	352,713	360,604

Earnings per average common share - basic	$1.91	$1.51	$3.37	$2.98

Note 7-Income Taxes

SunTrust adopted FIN 48 effective January 1, 2007. The cumulative effect adjustment recorded upon adoption resulted in an increase to unrecognized tax benefits of $46.0 million, with offsetting adjustments to equity and goodwill. The Company classifies interest and penalties related to its tax positions as a component of income tax expense. As of June 30, 2007, the Company’s cumulative unrecognized tax benefits amounted to $354.9 million, of which $293.1 million would affect the Company’s effective tax rate, if recognized, and the remaining $61.8 million of which is expected to impact goodwill, if recognized. Interest expense related to unrecognized tax benefits was $5.7 million and $11.0 million for the three and six months ended June 30, 2007, respectively. Cumulative unrecognized tax benefits included interest on an after-tax basis of $48.0 million as of June 30, 2007. The Company continually evaluates the unrecognized tax benefits associated with its uncertain tax positions; however, the Company does not currently anticipate that the total amount of unrecognized tax benefits will significantly increase or decrease during the next twelve months. The Company files consolidated and separate income tax returns in the United States Federal jurisdiction and in various state jurisdictions. The Company’s Federal returns through 1998 have been examined and the returns for tax years 1997 and 1998 are pending resolution at the Internal Revenue Service Appeals Division. The Company’s 1999 through 2004 Federal income tax returns are currently under examination by the Internal Revenue Service. Generally, the state jurisdictions in which the Company files income tax returns are subject to examination for a period from three to seven years after returns are filed.

Notes to Consolidated Financial Statements (Unaudited) - Continued

Note 8-Employee Benefit Plans

Stock Based Compensation

The Company provides stock-based awards through the SunTrust Banks, Inc. 2004 Stock Plan (“Stock Plan”) under which the Compensation Committee (“Committee”) has the authority to grant stock options, restricted stock, and performance-based restricted stock (“performance stock”) to key employees of the Company. Under the 2004 Stock Plan, a total of 14 million shares of common stock is authorized and reserved for issuance, of which no more than 2.8 million shares may be issued as restricted stock. Stock options are granted at a price which is no less than the fair market value of a share of SunTrust common stock on the grant date and may be either tax-qualified incentive stock options or non-qualified stock options. Stock options typically vest over three years and generally have a maximum contractual life of ten years and upon option exercise, shares are issued to employees from treasury stock.

Shares of restricted stock may be granted to employees and directors and typically cliff vest after three years. Restricted stock grants may be subject to one or more objective employment, performance or other grant conditions as established by the Committee at the time of grant. Any shares of restricted stock that are forfeited will again become available for issuance under the Plan. An employee or director has the right to vote the shares of restricted stock after grant until they are forfeited or vested. Compensation cost for restricted stock is equal to the fair market value of the shares at the date of the award and is amortized to compensation expense over the vesting period. Dividends are paid on awarded but unvested restricted stock, and participants may exercise voting privileges on such shares.

With respect to currently outstanding performance stock, shares must be granted, awarded and vested before participants take full title. After performance stock is granted by the Committee, specified portions are awarded based on increases in the average price of SunTrust common stock above the initial price specified by the Committee. Awards are distributed, subject to continued employment, on the earliest of (i) fifteen years after the date shares are awarded to participants; (ii) the participant attaining age 64; (iii) death or disability of a participant; or (iv) a change in control of the Company as defined in the Stock Plan. Dividends are paid on awarded but unvested performance stock, and participants may exercise voting privileges on such shares.

The compensation element for performance stock (which is deferred and shown as a reduction of shareholders’ equity) is equal to the fair market value of the shares at the date of the award and is amortized to compensation expense over the period from the award date to the participant attaining age 64 or the 15th anniversary of the award date whichever comes first. Approximately 40% of performance stock awarded became fully vested on February 10, 2000 and is no longer subject to the forfeiture condition set forth in the original agreements. This early-vested performance stock was converted into an equal number of “Phantom Stock Units” as of that date. Payment of Phantom Stock Units will be made to participants in shares of SunTrust common stock upon the earlier to occur of (1) the date on which the participant would have vested in his or her performance stock or (2) the date of a change in control. Dividend equivalents will be paid at the same rate as the shares of performance stock; however, these units will not carry voting privileges.

Notes to Consolidated Financial Statements (Unaudited) - Continued

The fair value of each stock option award is estimated on the date of grant using a Black-Scholes valuation model. Expected volatility is based on the historical volatility of the Company’s stock, using daily price observations over the expected term of the stock options. The expected term represents the period of time that stock options granted are expected to be outstanding and is derived from historical data which is used to evaluate patterns such as stock option exercise and employee termination. The expected dividend yield is based on recent dividend history, given that yields are reasonably stable. The risk-free interest rate is derived from the U.S. Treasury yield curve in effect at the time of grant based on the expected life of the option.

The weighted average fair values of options granted during the first six months of 2007 and 2006 were $16.75 and $16.53 per share, respectively. There were no new stock options granted during the second quarter of 2007 and 2006. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:


	Six Months Ended June 30
	2007		2006
Expected dividend yield	3.01	%	3.18	%
Expected stock price volatility	20.08		25.76
Risk-free interest rate (weighted average)	4.70		4.51
Expected life of options	6 years		6 years

The following table presents a summary of stock option and performance and restricted stock activity:


	Stock Options				Performance and Restricted Stock
(Dollars in thousands except per share data)	Shares		Price Range	Weighted- Average Exercise Price	Shares		Deferred Compensation		Weighted- Average Grant Price
Balance, January 1, 2007	18,680,710		$14.56-83.74	$64.39	1,870,604		$60,487		$57.12
Granted	715,284		85.06-85.06	85.06	971,377		82,552		84.98
Exercised/vested	(2,298,796	)	14.56-76.50	60.95	(212,668	)	-		39.23
Cancelled/expired/forfeited	(212,839	)	32.76-85.06	72.95	(167,381	)	(10,400	)	62.13
Amortization of compensation element of performance and restricted stock	-		-	-	-		(16,450	)	-
Repurchase of AMA member interests	-		-	-	-		(2,846	)	-

Balance, June 30, 2007	16,884,359		$14.56-$85.06	$65.63	2,461,932		$113,343		$69.32

Exercisable, June 30, 2007	12,129,312			$62.16

Available for Additional Grant, June 30, 2007 ¹	8,280,854

¹	Includes 0.9 million shares available to be issued as restricted stock.

Notes to Consolidated Financial Statements (Unaudited) - Continued

The following table presents information on stock options by ranges of exercise price at June 30, 2007:


(Dollars in thousands except per share data)
	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number Outstanding at June 30, 2007	Weighted- Average Exercise Price	Weighted- Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value	Number Exercisable at June 30, 2007	Weighted- Average Exercise Price	Weighted- Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value
$14.56 to $49.46	812,820	$43.30	3.95	$34,495	812,820	$43.30	3.95	$34,495
$49.47 to $64.57	6,359,733	56.44	4.58	186,365	6,359,733	56.44	4.58	186,365
$64.58 to $85.06	9,711,806	73.52	6.33	118,724	4,956,759	72.59	4.66	65,185

	16,884,359	$65.63	5.56	$339,584	12,129,312	$62.16	4.57	$286,045

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the second quarter of 2007 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on June 30, 2007. This amount changes based on the fair market value of the Company’s stock. Total intrinsic value of options exercised for the three and six months ended June 30, 2007 was $28.7 million and $56.9 million, respectively. Total intrinsic value of options exercised for the three and six months ended June 30, 2006 was $13.8 million and $37.4 million, respectively. Total fair value of performance and restricted shares vested was $5.2 million and $1.3 million and $8.3 million and $14.4 million for the three months and six months ended June 30, 2007 and 2006, respectively.

As of June 30, 2007, there was $137.4 million unrecognized stock-based compensation expense related to nonvested stock options, and performance and restricted stock, which is expected to be recognized over a weighted average period of 2.37 years.


	Three Months Ended June 30		Six Months Ended June 30
(In thousands)	2007	2006	2007	2006
Stock-based compensation expense:
Stock options	$3,929	$5,551	$8,857	$11,780
Performance and restricted stock	10,597	4,743	16,450	7,154


Total stock-based compensation expense	$14,526	$10,294	$25,307	$18,934

The recognized tax benefit amounted to $5.5 million and $3.9 million for the three months ended June 30, 2007 and 2006, respectively. For the six months ended June 30, 2007 and 2006, the recognized tax benefit was $9.6 million and $7.2 million, respectively.

Retirement Plans

On February 13, 2007, the Retirement Benefits plans, Supplemental Benefits plans and the Postretirement Welfare plans were amended. The effective date for changes impacting the Retirement Benefits plans and the Supplemental Benefits plans is January 1, 2008. The effective date for changes impacting the Postretirement Welfare plans is January 1, 2010.

Notes to Consolidated Financial Statements (Unaudited) - Continued

Retirement Plan participants who are Company employees as of December 31, 2007 (“Affected Participants”) will cease to accrue additional benefits under the existing pension benefit formula after that date and all their accrued benefits will be frozen. Beginning January 1, 2008, Affected Participants who have fewer than 20 years of service and future participants will accrue future pension benefits under a cash balance formula that provides compensation and interest credits to a Personal Pension Account. Affected Participants with 20 or more years of service as of December 31, 2007 will be given the opportunity to choose between continuing a traditional pension benefit accrual under a reduced formula or participating in the new Personal Pension Account. Effective January 1, 2008, the vesting schedule will also change from the current 5-year cliff to a 3-year cliff for participants employed by the Company on and after that date.

The NCF Retirement Plan was amended to completely freeze benefits for those Affected Participants who do not elect, or are not eligible to elect, the traditional pension benefit formula in the SunTrust Retirement Plan.

The SunTrust Supplemental Executive Retirement Plan (“SERP”), was amended to change the benefit formula for future service accruals. Current participants in the SunTrust SERP will continue to earn future accruals under a reduced final average earnings formula. All future participants and ERISA Excess Plan participants will accrue benefits under benefit formulas that mirror the revised benefit formulas in the SunTrust Retirement Plan.

The Postretirement Welfare Plan was amended to discontinue its subsidy of medical coverage for retirees under age 65 unless such retirees have attained at least age 55 with 10 years of service before January 1, 2010.

The adoption of these amendments required a remeasurement of the benefit obligation under US GAAP. The Retirement Benefits plans, Supplemental Benefits plans and Postretirement Welfare plans were remeasured on February 13, 2007. For purposes of valuing the Retirement Benefits plans and Supplemental Benefits plans, it was assumed that all employees eligible to choose the reduced final average pay formula would do so.

As of February 13, 2007, all plans impacted by plan amendments were remeasured using the following discount rates:

6.00% for the SunTrust Retirement Plan,

5.90% for the NCF Retirement Plan,

5.91% for the SunTrust SERP and Excess Plan,

5.85% for the Crestar SERP and Excess Plan and

5.80% for the Postretirement Welfare Plans.

No remeasurement was required for the NCF SERP since the benefit changes did not impact this plan. All other assumptions and methods used in the February 13, 2007 measurement were consistent with those used as of December 31, 2006.

Effective January 1, 2008, the Company’s matching contribution under the 401(k) plan will be increased to 100% of the first 5% of eligible pay that a participant, including executive participants, elects to defer to the 401(k) plan.

SunTrust did not contribute to either of its noncontributory qualified retirement plans (“Retirement Benefits” plans) in 2007. The expected long-term rate of return on plan assets is 8.5% for 2007.

Anticipated employer contributions/benefit payments for 2007 are $15.5 million for the Supplemental Retirement Benefit plans. For the second quarter of 2007, the actual employer contributions/benefit payments totaled $2.3 million. Actual employer contributions/benefit payments for the six months ended June 30, 2007 were $5.4 million.

Notes to Consolidated Financial Statements (Unaudited) - Continued

SunTrust contributed $0.2 million to the Postretirement Welfare Plan in the second quarter of 2007, and $0.3 million for the six months ended June 30, 2007. The expected long-term rate of return on plan assets is 7.5% for 2007.


	Three Months Ended June 30
	2007					2006
(Dollars in thousands)	Retirement Benefits		Supplemental Retirement Benefits	Other Postretirement Benefits		Retirement Benefits		Supplemental Retirement Benefits	Other Postretirement Benefits
Service cost	$16,298		$502	$251		$18,864		$620	$777
Interest cost	26,372		1,665	2,834		25,898		1,670	2,720
Expected return on plan assets	(46,977	)	-	(2,051	)	(41,276	)	-	(2,026	)
Amortization of prior service cost	(3,663	)	644	(391	)	(123	)	883	-
Recognized net actuarial loss	7,801		877	3,773		14,238		1,349	2,472
Amortization of initial transition obligation	-		-	-		-		-	579

Net periodic benefit cost	($169	)	$3,688	$4,416		$17,601		$4,522	$4,522


	Six Months Ended June 30
	2007					2006
(Dollars in thousands)	Retirement Benefits		Supplemental Retirement Benefits	Other Postretirement Benefits		Retirement Benefits		Supplemental Retirement Benefits	Other Postretirement Benefits
Service cost	$33,717		$1,018	$738		$36,873		$1,239	$1,557
Interest cost	52,508		3,357	5,671		50,623		3,339	5,448
Expected return on plan assets	(92,401	)	-	(4,092	)	(80,681	)	-	(4,057	)
Amortization of prior service cost	(5,560	)	1,431	(587	)	(240	)	1,765	-
Recognized net actuarial loss	15,779		1,763	6,738		27,829		2,700	4,949
Amortization of initial transition obligation	-		-	280		-		-	1,159
Partial settlement	60		-	-		312		54	-
Curtailment charge	-		-	11,586		-		-	-

Net periodic benefit cost	$4,103		$7,569	$20,334		$34,716		$9,097	$9,056

Note 9-Variable Interest Entities

SunTrust assists in providing liquidity to select corporate clients by directing them to a multi-seller commercial paper conduit, Three Pillars Funding LLC (“Three Pillars”). Three Pillars provides financing for direct purchases of financial assets originated and serviced by SunTrust’s corporate clients. Three Pillars finances this activity by issuing A-1/P-1 rated commercial paper. The result is a favorable funding arrangement for these clients.

In 2004, Three Pillars issued a subordinated note to a third party. According to the debt agreement, the holder absorbs the majority of Three Pillars’ expected losses. Therefore, the subordinated note investor is Three Pillars’ primary beneficiary, and thus the Company is not required to consolidate Three Pillars. As of June 30, 2007 and December 31, 2006, Three Pillars had assets not included on the Company’s Consolidated Balance Sheets of approximately $5.3 billion and $5.4 billion, respectively, consisting primarily of secured loans and marketable asset-backed securities.

Activities related to the Three Pillars relationship generated net fee revenue for the Company of approximately $7.6 million and $8.6 million for the three months ended June 30, 2007 and 2006, respectively and $14.6 million and $14.4 million for the six months ended June 30, 2007 and 2006, respectively. These activities include: client referrals and investment recommendations to Three Pillars; the issuing of letters of credit, which provides partial credit protection to the commercial paper holders; and providing a majority of the temporary liquidity arrangements that would provide funding to Three Pillars in the event it can no longer issue commercial paper or in certain other circumstances.

Off-balance sheet liquidity commitments and other credit enhancements made by the Company to Three Pillars, the sum of which represents the Company’s maximum exposure to potential loss, totaled $7.7 billion and $683.0 million, respectively, as of June 30, 2007 compared to $8.0 billion and $697.8 million, respectively, as of December 31, 2006. The Company manages the credit risk associated with these commitments by subjecting them to the Company’s normal credit approval and monitoring processes.

Notes to Consolidated Financial Statements (Unaudited) - Continued

The Company has significant variable interests in certain other securitization vehicles that are variable interest entities (“VIEs”) that are not consolidated because the Company is not the primary beneficiary. In such cases, the Company does not absorb the majority of the entities’ expected losses nor does it receive a majority of the expected residual returns. At June 30, 2007, total assets of these entities not included on the Company’s Consolidated Balance Sheets were approximately $2.8 billion compared to $2.2 billion at December 31, 2006. At June 30, 2007, the Company’s maximum exposure to loss related to these VIEs was approximately $31.6 million, which represents the Company’s investment in preference shares, compared to $32.2 million as of December 31, 2006.

As part of its community reinvestment initiatives, the Company invests in multi-family affordable housing properties throughout its footprint as a limited and/or general partner. The Company receives affordable housing federal and state tax credits for these investments. Partnership assets of approximately $722.8 million and $756.9 million in partnerships where SunTrust is only a limited partner were not included in the Consolidated Balance Sheets at June 30, 2007 and December 31, 2006, respectively. The Company’s maximum exposure to loss for these limited partner investments totaled $295.9 million and $330.6 million at June 30, 2007 and December 31, 2006, respectively. The Company’s maximum exposure to loss related to its affordable housing limited partner investments consists of the limited partnership equity investments, unfunded equity commitments, and debt issued by the Company to the limited partnerships.

SunTrust is the managing general partner of a number of non-registered investment limited partnerships which have been established to provide alternative investment strategies for its clients. In reviewing the partnerships for consolidation, SunTrust determined that these were voting interest entities and accordingly considered the consolidation guidance contained in EITF Issue No. 04-5, “Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights.” Under the terms of SunTrust’s non-registered investment limited partnerships, the limited partners have certain rights, such as the right to remove the general partner, or “kick-out rights”, as indicated in EITF Issue No. 04-5. Therefore, SunTrust, as the general partner, is precluded from consolidating the limited partnerships.

Note 10-Guarantees

The Company has undertaken certain guarantee obligations in the ordinary course of business. In following the provisions of FIN 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” (“FIN 45”) the Company must consider guarantees that have any of the following four characteristics: (i) contracts that contingently require the guarantor to make payments to a guaranteed party based on changes in an underlying factor that is related to an asset, a liability, or an equity security of the guaranteed party; (ii) contracts that contingently require the guarantor to make payments to a guaranteed party based on another entity’s failure to perform under an obligating agreement; (iii) indemnification agreements that contingently require the indemnifying party to make payments to an indemnified party based on changes in an underlying factor that is related to an asset, a liability, or an equity security of the indemnified party; and (iv) indirect guarantees of the indebtedness of others. The issuance of a guarantee imposes an obligation for the Company to stand ready to perform, and should certain triggering events occur, it also imposes an obligation to make future payments. Payments may be in the form of cash, financial instruments, other assets, shares of stock, or provisions of the Company’s services. The following is a discussion of the guarantees that the Company has issued as of June 30, 2007, which have characteristics as specified by FIN 45.

Notes to Consolidated Financial Statements (Unaudited) - Continued

Letters of Credit

Letters of credit are conditional commitments issued by the Company generally to guarantee the performance of a client to a third party in borrowing arrangements, such as commercial paper, bond financing and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to clients and may be reduced by selling participations to third parties. The Company issues letters of credit that are classified as financial standby, performance standby or commercial letters of credit. Commercial letters of credit are specifically excluded from the disclosure and recognition requirements of FIN 45.

As of June 30, 2007 and December 31, 2006, the maximum potential amount of the Company’s obligation was $12.2 billion and $12.9 billion, respectively, for financial and performance standby letters of credit. The Company has recorded $107.1 million and $104.8 million in other liabilities for unearned fees related to these letters of credit as of June 30, 2007 and December 31, 2006, respectively. The Company’s outstanding letters of credit generally have a term of less than one year but may extend longer than one year. If a letter of credit is drawn upon, the Company may seek recourse through the client’s underlying line of credit. If the client’s line of credit is also in default, the Company may take possession of the collateral securing the line of credit, where applicable.

Loan Sales

SunTrust Mortgage, Inc. (“STM”), a consolidated subsidiary of SunTrust, originates consumer residential mortgage loans, a portion of which are sold to outside investors in the normal course of business. When mortgage loans are sold, representations and warranties regarding certain attributes of the loans sold are made to the third party purchaser. These representations and warranties may extend through the life of the mortgage loan, generally 25 to 30 years. Subsequent to the sale, if inadvertent underwriting deficiencies or documentation defects are discovered in individual mortgage loans, STM will be obligated to repurchase the respective mortgage loan if such deficiencies or defects cannot be cured by STM within the specified period following discovery. STM maintains a liability for estimated losses on mortgage loans that may be repurchased due to general representations and warranties or purchasers’ rights under early payment default provisions. As of June 30, 2007 and December 31, 2006, $20.3 million and $13.0 million, respectively were accrued for these repurchases. The increase in the liability primarily relates to loan sales that occurred during the first half of 2007 and experienced an early payment default event, as well as adjustments based on recent experience to the estimated loss factors used to calculate the liability.

Contingent Consideration

The Company has contingent payment obligations related to certain business combination transactions. Payments are calculated using certain post-acquisition performance criteria. The potential liability associated with these arrangements was approximately $20.8 million and $82.8 million as of June 30, 2007 and December 30, 2006, respectively. As contingent consideration in a business combination is not subject to the recognition and measurement provisions of FIN 45, the Company currently has no amounts recorded for these guarantees as of June 30, 2007. If required, these contingent payments will be payable within the next two years.

Notes to Consolidated Financial Statements (Unaudited) - Continued

Other

In the normal course of business, the Company enters into indemnification agreements and provides standard representations and warranties in connection with numerous transactions. These transactions include those arising from underwriting agreements, merger and acquisition agreements, loan sales, contractual commitments, and various other business transactions or arrangements. The extent of the Company’s obligations under these indemnification agreements depends upon the occurrence of future events; therefore, the Company’s potential future liability under these arrangements is not determinable.

Third party investors hold Series B Preferred Stock in STB Real Estate Holdings (Atlanta), Inc. (“STBREH”), a subsidiary of SunTrust. The contract between STBREH and the third party investors contains an automatic exchange clause which, under certain circumstances, requires the Series B preferred shares to be automatically exchanged for guaranteed preferred beneficial interest in debentures of the Company. The guaranteed preferred beneficial interest in debentures is guaranteed to have a liquidation value equal to the sum of the issue price, $350.0 million, and an approximate yield of 8.5% per annum subject to reduction for any cash or property dividends paid to date. As of June 30, 2007 and December 31, 2006, $561.7 million and $538.7 million was accrued in other liabilities for the principal and interest, respectively. This exchange agreement remains in effect as long as any shares of Series B Preferred Stock are owned by the third party investors, not to exceed 30 years from the February 25, 2002 date of issuance.

SunTrust Investments Services, Inc., “STIS” and SunTrust Capital Markets, Inc. (“STCM”), broker-dealer affiliates of SunTrust, use a common third party clearing broker to clear and execute their customers’ securities transactions and to hold customer accounts. Under their respective agreements, STIS and STCM agree to indemnify the clearing broker for losses that result from a customer’s failure to fulfill its contractual obligations. As the clearing broker’s rights to charge STIS and STCM have no maximum amount, the Company believes that the maximum potential obligation cannot be estimated. However, to mitigate exposure, the affiliate may seek recourse from the customer through cash or securities held in the defaulting customers’ account. For the three and six months ended June 30, 2007 and June 30, 2006, STIS and STCM experienced minimal net losses as a result of the indemnity. The clearing agreements expire in May 2010 for both STIS and STCM.

The Company has guarantees associated with credit derivatives, an agreement in which the buyer of protection pays a premium to the seller of the credit derivatives for protection against an event of default. Events constituting default under such agreements that would result in the Company making a guaranteed payment to a counterparty may include (i) default of the referenced asset; (ii) bankruptcy of the client; or (iii) restructuring or reorganization by the client. The maximum guarantee outstanding as of June 30, 2007 and December 31, 2006 was $309.1 million and $345.6 million, respectively. As of June 30, 2007, the maximum guarantee amounts expire as follows: $87.0 million in 2008, $37.8 million in 2009, $76.5 million in 2010, $44.6 million in 2011, and $63.2 million thereafter. In the event of default under the contract, the Company would make a cash payment to the holder of credit protection and would take delivery of the referenced asset from which the Company may recover a portion of the credit loss. There were no cash payments made during 2006 or in the six months ended June 30, 2007. In addition, there are certain purchased credit derivative contracts that mitigate a portion of the Company’s exposure on written contracts. Such contracts are not included in this disclosure since they represent benefits to, rather than obligations of, the Company. The Company records purchased and written credit derivative contracts at fair value.

Notes to Consolidated Financial Statements (Unaudited) - Continued

SunTrust Community Development Corporation (“CDC”), a SunTrust subsidiary, obtains state and federal tax credits through the construction and development of low income housing properties. CDC or its subsidiaries are limited and/or general partners in various partnerships established for the properties. If the partnerships generate tax credits, those credits may be sold to outside investors. As of June 30, 2007, the CDC had completed six tax credit sales containing guarantee provisions stating that the CDC will make payment to the outside investors if the tax credits become ineligible. The CDC also guarantees that the general partner under the transaction will perform on the delivery of the credits. The guarantees are expected to expire within a ten year period. As of June 30, 2007, the maximum potential amount that the CDC could be obligated to pay under these guarantees is $37.0 million; however, the CDC can seek recourse against the general partner. Additionally, the CDC can seek reimbursement from cash flow and residual values of the underlying low income housing properties provided that the properties retain value. As of June 30, 2007 and December 31, 2006, $14.1 million and $15.3 million were accrued, respectively, representing the remainder of tax credits to be delivered, and were recorded in Other Liabilities on the Consolidated Balance Sheets.

Note 11-Concentrations of Credit Risk

Credit risk represents the maximum accounting loss that would be recognized at the reporting date if borrowers failed to perform as contracted and any collateral or security proved to be of no value. Concentrations of credit risk (whether on- or off-balance sheet) arising from financial instruments can exist in relation to individual borrowers or groups of borrowers, certain types of collateral, certain types of industries, certain loan products, or certain regions of the country.

Credit risk associated with these concentrations could arise when a significant amount of loans, related by similar characteristics, are simultaneously impacted by changes in economic or other conditions that cause their probability of repayment to be adversely affected. The Company does not have a significant concentration of risk to any individual client except for the U.S. government and its agencies. The major concentrations of credit risk for the Company arise by collateral type in relation to loans and credit commitments. The only significant concentration that exists is in loans secured by residential real estate. At June 30, 2007, the Company owned $45.1 billion in residential real estate loans and home equity lines, representing 37.9% of total loans, and an additional $20.3 billion in commitments to extend credit on home equity loans and $10.5 billion in mortgage loan commitments. At December 31, 2006, the Company had $47.9 billion in residential real estate loans and home equity lines, representing 39.5% of total loans, and an additional $19.0 billion in commitments to extend credit on home equity loans and $28.2 billion in mortgage loan commitments. The Company originates and retains certain residential mortgage loan products that include features such as interest only loans, high loan to value loans and low initial interest rate loans, which comprised approximately 42% and 37% of loans secured by residential real estate at June 30, 2007 and December 31, 2006, respectively. The risk in each loan type is mitigated and controlled by managing the timing of payment shock, private mortgage insurance and underwriting guidelines and practices. A geographic concentration arises because the Company operates primarily in the Southeastern and Mid-Atlantic regions of the United States.

SunTrust engages in limited international banking activities. The Company’s total cross-border outstandings were $719.8 million and $693.1 million as of June 30, 2007 and December 31, 2006, respectively.

Notes to Consolidated Financial Statements (Unaudited) - Continued

Note 12-Fair Value

As discussed in Note 1, “Accounting Policies”, to the Consolidated Financial Statements, SunTrust early adopted the recently issued fair value financial accounting standards SFAS Nos. 157 and 159 on January 1, 2007. In certain circumstances, fair value enables a company to more accurately align its financial performance with the economic value of actively traded or hedged assets or liabilities. Fair value enables a company to mitigate the non-economic earnings volatility caused from financial assets and financial liabilities being carried at different bases of accounting, as well as to more accurately portray the active and dynamic management of a company’s balance sheet. The objectives of the new fair value standards align very closely with the Company’s recent balance sheet management strategies.

In conjunction with adopting SFAS No. 159, the Company elected to record specific financial assets and financial liabilities at fair value. These instruments include all, or a portion, of the following: debt, available for sale debt securities, adjustable rate residential mortgage portfolio loans, securitization warehouses and trading loans. In the second quarter of 2007, the Company elected to record at fair value certain newly-originated mortgage loans held for sale based upon defined product criteria.

The following is a description of each asset and liability class for which fair value has been elected, including the specific reasons for electing fair value and the strategies for managing the assets and liabilities on a fair value basis. See the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2007 for more information regarding the Company’s initial evaluation of SFAS Nos. 157 and 159 and rationale for early adoption.

Fixed Rate Debt

The debt that the Company elected to carry at fair value was all of its fixed rate debt that had previously been designated in qualifying fair value hedges using receive fixed/pay floating interest rate swaps, pursuant to the provisions of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” This population specifically included $3.5 billion of fixed-rate Federal Home Loan Bank (“FHLB”) advances and $3.3 billion of publicly-issued debt. The Company elected to record this debt at fair value in order to align the accounting for the debt with the accounting for the derivative without having to account for the debt under hedge accounting, thus avoiding the complex and time consuming fair value hedge accounting requirements of SFAS No. 133. The reduction to opening retained earnings from recording the debt at fair value was $197.2 million. This move to fair value introduces potential earnings volatility due to changes in the Company’s credit spread that were not required to be valued under the SFAS No. 133 hedge designation. All of the debt, along with the interest rate swaps previously designated as hedges under SFAS No. 133, continues to remain outstanding. As of June 30, 2007, the Company had not issued any new fixed rate debt since January 1, 2007.

Available for Sale and Trading Securities

The available for sale debt securities that were transferred to trading were substantially all of the debt securities within specific assets classes, whether the securities were valued at an unrealized loss or unrealized gain. The Company elected to reclassify approximately $15.4 billion of securities to trading at January 1, 2007, as well as an additional $600 million of purchases of similar assets that occurred during the first quarter. The reduction to opening retained earnings related to reclassifying the $15.4 billion of securities to trading was $147.4 million. The Company’s entire securities portfolio is of high credit quality, such that the opening retained earnings adjustment was not significantly impacted by the credit risk embedded in the assets but rather due to interest rates. This net unrealized loss was already reflected in accumulated other comprehensive income and, therefore, upon reclassification to retained earnings, there was no net impact to total shareholders’ equity.

Notes to Consolidated Financial Statements (Unaudited) - Continued

The Company elected to move these available for sale securities to trading securities in order to be able to more actively trade a more significant portion of its investment portfolio and reduce the overall size of the available for sale portfolio. In determining the assets to be sold, the Company considered economic factors, such as yield and duration, in relation to its balance sheet strategy for the securities portfolio. In evaluating its total available for sale portfolio of approximately $23 billion at January 1, 2007, the Company determined that approximately $3 billion of securities were not available or were not practical to be fair valued and reclassified to trading under SFAS No. 159, as these securities had matured or been called during the quarter, were subject to business restrictions, were privately placed or had nominal principal amounts. Approximately $5 billion of securities aligned with the Company’s recent balance sheet strategy, due to the nature of the assets (such as 30-year fixed rate mortgage backed securities (“MBS”), 10/1 adjustable rate mortgages (“ARMs”), floating rate asset backed securities (“ABS”) and municipal bonds); therefore, the securities continued to be classified as available for sale. These securities yielded over 5.6%, had a duration over 4.0%, and were in a $6.7 million net unrealized gain position as of January 1, 2007. The remaining $15.4 billion of securities, which included hybrid ARMs, collateralized mortgage backed securities (“CMBS”), collateralized mortgage obligations (“CMO”) and MBS (excluding those classes of mortgage-backed securities that remained classified as securities available for sale), yielded approximately 4.5% and had a duration under 3.0%. The approximate $600 million of securities that were purchased in the first quarter and originally classified as available for sale were similar to the securities reclassified to trading on January 1, 2007 upon adoption of SFAS No. 159; accordingly, the Company reclassified these securities to trading pursuant to the provisions of SFAS No. 159.

During the first quarter of 2007, in connection with the Company’s decision to early adopt SFAS No. 159, the Company purchased approximately $1.7 billion of treasury bills, which were classified as trading securities, and approximately $3.2 billion of 30-year fixed rate MBS, which were classified as securities available for sale. The Company entered into approximately $13.5 billion of interest rate derivatives to mitigate the fair value volatility of the available for sale securities that had been reclassified to trading. Finally, as part of its asset/liability strategies, the Company executed an additional $7.5 billion notional receive-fixed interest rate swaps that were designated as cash flow hedges under SFAS No. 133 on floating rate commercial loans.

During the second quarter of 2007, the Company sold substantially all of the $16.0 billion in securities transferred to trading at prices that, in the aggregate and including the hedging gains and losses, approximated the fair value of the securities at March 31, 2007, and terminated the interest rate derivatives it had entered into as hedges of the fair value. During the second quarter of 2007, the Company made additional purchases of approximately $5.4 billion of treasury bills and $4.3 billion of agency notes classified as trading and approximately $2.0 billion of 30-year fixed-rate MBS classified as securities available for sale. The 30-year fixed-rate MBS that were purchased during the second quarter were a similar asset type to the securities that remained classified as available for sale. These securities yield over 5.6% and have an effective duration of approximately 5.7%. As of June 30, 2007, $9.5 billion of treasury bills and agency notes classified as trading and approximately $7.5 billion of 30-year fixed-rate MBS classified as securities available for sale were outstanding.

Notes to Consolidated Financial Statements (Unaudited) - Continued

Mortgage Loans Held for Sale

In connection with the early adoption of SFAS No. 159, the Company elected to carry $4.1 billion of prime quality, mid-term adjustable rate, highly commoditized, conforming agency and nonagency conforming residential mortgage portfolio loans at fair value as of January 1, 2007 and transferred these loans to held for sale at fair value at the end of the first quarter. These loans were all performing loans and virtually all had not been past due 30 days or more over the prior 12 month period. The reduction to opening retained earnings related to these loans was $44.2 million, which was net of a $4.1 million reduction in the allowance for loan losses related to these loans. In order to moderate the growth of earning assets, the Company decided in the second quarter of 2006 to no longer portfolio new originations of these types of loans, but had not undertaken plans to sell or securitize any of these portfolio loans. In connection with the final issuance of SFAS No. 159, the Company evaluated the composition of the mortgage loan portfolio, particularly in light of its plans to no longer hold the above mentioned mortgage loans in its portfolio. In addition, the Company reviewed certain business restrictions on loans that are held by real estate investment trusts (“REITs”). Based on this evaluation, the Company elected to record $4.1 billion of mortgage loans at fair value. The loans that the Company elected to move to fair value were not owned by a REIT and had a weighted average coupon rate of approximately 4.94%. In connection with recording these loans at fair value, the Company entered into hedging activities to mitigate the earnings volatility from changes in the loans’ fair value. As of June 30, 2007, $1.2 billion of the $4.1 billion in fair valued mortgage loans remained outstanding. During the second quarter of 2007, the Company sold $2.9 billion of the $4.1 billion of mortgage loans transferred to loans held for sale that, in the aggregate and including the hedging gains and losses, approximated the fair value of the mortgage loans at March 31, 2007, and terminated the interest rate derivatives it had entered into as hedges of the fair value.

In the second quarter of 2007, the Company began recording at fair value certain newly-originated mortgage loans held for sale based upon defined product criteria. SunTrust chose to fair value these mortgage loans held for sale in order to eliminate the complexities and inherent difficulties of achieving hedge accounting and to better align reported results with the underlying economic changes in value of the loans and related hedge instruments. During the second quarter of 2007, $5.2 billion of newly-originated mortgage loans held for sale were recorded at fair value. This election impacts the timing and recognition of origination fees and costs, as well as servicing value. Specifically, origination fees and costs, which had been appropriately deferred under SFAS No. 91 and recognized as part of the gain/loss on sale of the loan, are now recognized in earnings at the time of origination. For the three months ended June 30, 2007, approximately $11.9 million in loan origination fees and approximately $12.4 million in loan origination costs were recognized due to this fair value election. The servicing value, which had been recorded at the time the loan was sold as a mortgage servicing right, is now included in the fair value of the loan and recognized at origination of the loan. The Company began using derivatives to economically hedge changes in servicing value as a result of including the servicing value in the fair value of the loan. The estimated impact from recognizing servicing value, net of related hedging costs, as part of the fair value of the loan is captured in the overall change in mortgage production income.

Securitization and Trading Loans

As part of its securitization and trading activities, the Company often warehouses assets prior to sale or securitization, retains interests in securitizations, and maintains a portfolio of loans that it trades in the secondary market. At January 1, 2007, the Company transferred to trading assets approximately $600 million of loans, substantially all of which were purchased from the market for the purpose of sales into securitizations, which were previously classified as loans held for sale. In addition, the Company owns approximately $9 million of residual interests from securitizations that were previously classified as securities available for sale, which were transferred to trading assets. Pursuant to the provisions of SFAS No. 159, the Company elected to carry warehoused and trading loans at fair value in order to align the economics of these instruments with the hedges that the Company typically executes on certain of these loans and to reclassify its residual interests to trading assets, consistent with other residual positions the Company owns. During the second quarter of 2007, approximately $200 million of the $600 million of trading loans transferred into trading assets as of January 1, 2007 were sold as part of the Company’s loan trading and securitization activities and additional loans were purchased and recorded at fair value.

Notes to Consolidated Financial Statements (Unaudited) - Continued

The most significant financial impacts of adopting the provisions of SFAS No. 157 related to valuing mortgage loans held for sale, and mortgage loan commitments (related to loans intended to be held for sale) that are derivatives under the provisions of SFAS No. 133, as amended by SFAS No. 149. Under SFAS No. 157, the fair value of a closed loan includes the embedded cash flows that are ultimately realized as servicing value either through retention of the servicing asset or through the sale of a loan on a servicing released basis. The valuation of loan commitments includes assumptions related to the likelihood that a commitment will ultimately result in a closed loan (“pull-through rates”). These pull-through rates are based on the Company’s historical data, which is a significant unobservable assumption. Prior accounting requirements under EITF 02-03, “Accounting for Contracts involved in Energy Trading and Risk Managements Activities,” precluded the recognition of any day one gains and losses if fair value was not based on market observable data. Rather, these deferred gains and losses were recognized when the rate lock expired or when the underlying loan was ultimately sold. The change in valuation methodology under SFAS No. 157 accelerates the recognition of these day one gains and losses, excluding the servicing value. As a result of adopting SFAS No. 157, the Company recorded a $10.9 million reduction to opening retained earnings during the first quarter of 2007.

Upon adoption of SFAS No. 157, the Company applied the following fair value hierarchy:

Level 1 - Assets or liabilities for which the identical item is traded on an active exchange, such as publicly-traded instruments or futures contracts.

Level 2 - Assets and liabilities valued based on observable market data for similar instruments.

Level 3 - Assets or liabilities for which significant valuation assumptions are not readily observable in the market; instruments valued based on the best available data, some of which is internally-developed, and considers risk premiums that a market participant would require.

The Company measures or monitors many of its assets and liabilities on a fair value basis. Fair value is used on a recurring basis for those assets and liabilities that were elected under SFAS No. 159 as well as for certain assets and liabilities in which fair value is the primary basis of accounting. Examples of these include derivative instruments, available for sale and trading securities, fixed rate debt, certain loans held for sale and certain residual interests from Company-sponsored securitizations. Additionally, fair value is used on a non-recurring basis to evaluate assets or liabilities for impairment or for disclosure purposes in accordance with SFAS No. 107, “Disclosures about Fair Value of Financial Instruments.” Examples of these non-recurring uses of fair value include certain loans held for sale accounted for on a lower of cost or market basis, mortgage servicing rights, goodwill, and long-lived assets. Depending on the nature of the asset or liability, the Company uses various valuation techniques and assumptions when estimating the instrument’s fair value. These valuation techniques and assumptions are in accordance with SFAS No. 157.

Notes to Consolidated Financial Statements (Unaudited) - Continued

Fair value is defined as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at and/or marked to fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability. When possible, the Company looks to active and observable markets to price identical assets or liabilities. When identical assets and liabilities are not traded in active markets, the Company looks to market observable data for similar assets and liabilities. Nevertheless, certain assets and liabilities are not actively traded in observable markets and the Company must use alternative valuation techniques to derive a fair value measurement.

The majority of the fair value amounts included in current period earnings resulted from Level 2 fair value methodologies. This result is reflective of the Company’s overall risk management views and business initiatives, such that products with significant unobservable data inputs (i.e., Level 3) are not prevalent in the Company’s balance sheet management strategies.

The most significant instruments that the Company fair values include securities, derivative instruments, fixed rate debt and loans, almost all of which fall into Level 2 in the fair value hierarchy. Other than derivative instruments, the majority of the securities in the Company’s trading and available for sale portfolios, along with the publicly issued debt are priced via independent providers, whether those are pricing services or quotations from market-makers in the specific instruments. In obtaining such valuation information from third parties, the Company has evaluated the valuation methodologies used to develop the fair values in order to determine whether such valuations are representative of an exit price in the Company’s principal markets. Further, the Company has developed an internal, independent price verification function that performs testing on valuations received from third parties. The Company’s principal markets for its securities portfolios are the secondary institutional markets, with an exit price that is predominantly reflective of bid level pricing in those markets. Debt that the Company has fair valued is priced based on observable market data in the institutional markets, which is its principal market. Derivative instruments are primarily transacted in the institutional dealer market and priced with observable market assumptions at a mid-market valuation point, with appropriate valuation adjustments for liquidity and credit risk. For purposes of valuation adjustments to its derivative positions under SFAS No. 157, the Company has evaluated liquidity premiums that may be demanded by market participants, as well as the credit risk of its counterparties and its own credit. The Company has considered factors such as the likelihood of default by itself and its counterparties, its net exposures and remaining maturities in determining the appropriate fair value adjustments to record. These valuation adjustments were not significant to the first or second quarters of 2007. For loans where quoted market prices are not available, the fair value of loans is based on securities prices of similar products and when appropriate includes adjustments to account for credit spreads, interest rates, collateral type and costs that would be incurred to transform a loan into a security when sold. The principal market for loans is the secondary loan market in which loans trade as either whole loans or securities. The Company employs the same valuation techniques in the determination of fair value for loans accounted for under fair value as those accounted for under the lower of cost or fair value.

Notes to Consolidated Financial Statements (Unaudited) - Continued

For loan products and issued liabilities that the Company has elected to carry at fair value, the Company has considered the component of the fair value changes due to instrument-specific credit risk, which is intended to be an approximation of the fair value change attributable to changes in borrower-specific credit risk. As only an insignificant percentage of the loans carried at fair value are on nonaccrual status, are past due or have other characteristics that would be attributable to borrower-specific credit risk, the Company does not ascribe any significant fair value changes to instrument-specific credit risk as of June 30, 2007. Further, the allowance for loan losses that was removed due to electing to carry certain mortgage loans at fair value did not include any specific credit reserves for those loans. However, when estimating the fair value of its loans, interest rates and general conditions in the principal markets for the loans are the most significant underlying variables that will drive changes in the fair values of the loans, not borrower-specific credit risk. For its fixed rate debt, the Company estimated credit spreads above LIBOR rates, based on trading levels of its debt in the market as of June 30, 2007 and as of March 31, 2007. Based on this methodology, the Company estimates that it recognized a $3.0 million and $6.6 million loss for the three and six months ended June 30, 2007, respectively, due to its own credit as part of the total change in the fair value of its fixed rate public debt.

The following table presents financial assets and financial liabilities measured at fair value on a recurring basis:


		Fair Value Measurements at June 30, 2007, Using
(Dollars in thousands)	Fair Value Measurements June 30, 2007	Quoted Prices In Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)

Trading assets	$13,044,972	$5,057,277	$7,910,672	$77,023
Securities available for sale	$14,725,957	2,709,745	11,308,170	708,042
Loans held for sale	6,494,602	-	6,494,602	-
Brokered deposits	282,889	-	282,889	-
Trading liabilities	2,156,279	572,491	1,583,788	-
Long-term debt	6,757,188	-	6,757,188	-
Other liabilities	17,508	-	-	17,508

The following table presents the change in fair value for the three and six month periods ended June 30, 2007 for those specific financial instruments in which fair value has been elected. The table does not reflect the change in fair value attributable to the related economic hedges the Company used to mitigate the interest rate risk associated with the financial instruments. The changes in the fair value of economic hedges were also recorded in trading account profits and commissions or mortgage production related income, as appropriate, and substantially offset the change in fair value of the financial instruments referenced in the table below. The Company’s economic hedging activities are deployed at both the instrument and portfolio level.

Notes to Consolidated Financial Statements (Unaudited) - Continued

Fair Value gain/(loss) for the 3-month Period Ended

June 30, 2007, for Items Measured at Fair Value Pursuant

to Election of the Fair Value Option

Fair Value gain/(loss) for the 6-month Period Ended

June 30, 2007, for Items Measured at Fair Value Pursuant

to Election of the Fair Value Option

(Dollars in thousands)

Trading Account

Profits and

Commissions

Mortgage

Production

Income

Total

Changes in

Fair Values

Included in

Current-

Period

Earnings¹

Trading Account

Profits and

Commissions

Mortgage

Production

Income

Total

Changes in

Fair Values

Included in

Current-

Period

Earnings¹

Trading assets

($22,352

)

($22,352

)

$48,989

Loans held for sale

(12,684

)

(12,684

)

(16,809

)

(16,809

)

Brokered deposits

4,418

6,147

Long-term debt

139,691

120,541

¹ Changes in fair value for the three and six months ended June 30, 2007 exclude accrued interest for the period then ended. Interest income or interest expense on trading assets, loans held for sale, brokered deposits and long-term debt that have been elected to be carried at fair value under the provisions of SFAS No. 159 or SFAS No. 155 are recorded in interest income or interest expense in the Consolidated Statements of Income based on their contractual coupons. Certain trading assets do not have a contractually stated coupon and, for these securities, the Company records interest income based on the effective yield calculated upon acquisition of those securities. For the three and six months ended June 30, 2007, the change in fair value related to accrued interest income on loans held for sale was an increase of $9.7 million and $9.9 million, respectively and the change in fair value related to accrued interest expense on brokered deposits and long-term debt was an increase of $2.3 million and $3.9 million and a decrease of $25.2 million and $252 thousand, respectively.

The following table presents the change in carrying value of those financial assets measured at fair value on a non-recurring basis, for which impairment was recognized in the current period. The table does not reflect the change in fair value attributable to the related economic hedges the Company used to mitigate the interest rate risk associated with these financial assets. The changes in fair value of the economic hedges were also recorded in mortgage production related income, and substantially offset the change in fair value of the financial assets referenced in the table below. The Company’s economic hedging activities are deployed at the portfolio level.

Fair Value Measurement at

June 30, 2007,

Using

(Dollars in thousands)

Fair Value

Measurements

June 30, 2007

Quoted
Prices In
Active

Markets

for

Identical

Assets

(Level 1)

Significant

Other

Observable

Inputs

(Level 2)

Significant

Unobservable

Inputs
(Level 3)

Total losses recorded in

mortgage production related income for the

three months
ended June 30, 2007

six months
ended June 30, 2007

Loans Held for Sale ¹

$4,790,286

($68,004)

($105,142)

¹These balances were not impacted by the election of the fair value option and are measured at fair value on a non-recurring basis in accordance with applicable accounting policies.

As of June 30, 2007, approximately $119.9 million of leases held for sale were included in loans held for sale in the Consolidated Balance Sheets and were not eligible for fair value election under SFAS No. 159.

SunTrust used significant unobservable inputs (Level 3) to fair-value certain trading assets, securities available for sale and other liabilities as of June 30, 2007. The trading securities are residual interests that the Company retained from certain securitization and/or structured asset sale transactions. The significant assumptions that are not observable in the market, due to illiquidity and the uniqueness of the asset classes, relate to prepayment speeds, discount rates and credit spreads. Available for sale securities consist of instruments that are not readily marketable and may only be redeemed with the issuer at par. The Company classifies interest rate lock commitments on residential mortgage loans, which are derivatives under SFAS No. 133, within other liabilities or other assets. The fair value of these commitments, while based in part, on interest rates observable in the market, is highly dependent on the ultimate closing of the loans. These pull-through rates are based on the Company’s historical data and reflect an estimate of the likelihood of a commitment that will ultimately result in a closed loan.

Notes to Consolidated Financial Statements (Unaudited) - Continued

The following table shows a reconciliation of the beginning and ending balances for fair value measurements using significant unobservable inputs:


	Fair Value Measurements Using Significant Unobservable Inputs

(Dollars in thousands)	Trading Assets		Securities Available for Sale			Other Liabilities

Beginning balance January 1, 2007	$24,393			$734,633		$29,633
Total gains or losses (realized/unrealized):
Included in earnings	(4,406	)		-		(12,125	)
Included in other comprehensive income	-			497		-
Purchases and issuances	61,853			507		155,563
Settlements	(4,817	)		(27,595	)	(114,333	)
Expirations	-			-		(41,230	)

Ending balance June 30, 2007	$77,023			$708,042		$17,508

The amount of total gains or (losses) for the period included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the June 30, 2007.	($4,406	)	$	-		($17,508	)

For the trading assets and other liabilities fair-valued using Level 3 inputs, the realized and unrealized gains and losses included in earnings for the three and six months ended June 30, 2007 are reported in trading account profits and commissions and mortgage production related income as follows:


	Three months ended June 30, 2007			Six months ended June 30, 2007

	Trading Account Profits and Comissions		Mortgage Production Related Income	Trading Account Profits and Comissions		Mortgage Production Related Income

Total change in earnings	$	-	$3,626	($4,406	)	($12,125	)

Change in unrealized gains or losses relating to assets and liabilities still held at June 30, 2007	$	-	$3,626	($4,406	)	($17,508	)

The following table presents the difference between the aggregate fair value and the aggregate unpaid principal balance of loans, brokered deposits, and long-term debt instruments for which the fair value option has been elected. For loans held for sale for which the fair value option has been elected, the table also includes the difference between aggregate fair value and the aggregate unpaid principal balance of loans that are 90 days or more past due, as well as loans in nonaccrual status.


(Dollars in thousands)	Aggregate Fair Value June 30, 2007	Aggregate Unpaid Principal Balance under FVO June 30, 2007	Fair value carrying amount over/(under) unpaid principal

Trading assets	$1,349,505	$864,355	$485,150
Loans held for sale	6,492,416	6,594,831	(102,415	)
Past due loans of 90 days or more	1,208	1,439	(231	)
Nonaccrual loans	978	1,164	(186	)
Brokered deposits	282,889	288,670	(5,781	)
Long-term debt	6,757,188	6,816,750	(59,562	)

Notes to Consolidated Financial Statements (Unaudited) - Continued

Note 13 - Business Segment Reporting

The Company uses a line of business management structure to measure business activities. The Company has five primary lines of business (“LOBs”): Retail, Commercial, Corporate and Investment Banking, Wealth and Investment Management, and Mortgage.

The Retail line of business includes loans, deposits, and other fee-based services for consumers and business clients with less than $5 million in sales (up to $10 million in sales in larger metropolitan markets). Clients are serviced through an extensive network of traditional and in-store branches, ATMs, the Internet and the telephone.

The Commercial line of business provides enterprises with a full array of financial products and services including commercial lending, financial risk management, and treasury and payment solutions including commercial card services. This line of business primarily serves business clients between $5 million and $250 million in annual revenues and clients specializing in commercial real estate activities.

Corporate and Investment Banking provides advisory services, debt and equity capital raising solutions, financial risk management capabilities, and debt and equity sales and trading for the Corporation’s clients as well as traditional lending, leasing, treasury management services and institutional investment management to middle and large corporate clients.

Wealth and Investment Management provides a full array of wealth management products and professional services to both individual and institutional clients. Wealth and Investment Management’s primary segments include Private Wealth Management (brokerage and individual wealth management), AMA Holdings, and Institutional Investment Management and Administration. On March 30, 2007, SunTrust merged its wholly-owned subsidiary, Lighthouse Partners, with and into Lighthouse Investment Partners, LLC, the entity that was serving as the sub-advisor to Lighthouse Partners and the Lighthouse Partners’ managed funds. SunTrust holds a minority interest in the combined entity and it also has a revenue sharing arrangement with Lighthouse Investment Partners. On July 24, 2007, SunTrust signed a “merger implementation agreement” with HFA Holdings Ltd., an Australian fund manager, to sell Lighthouse Investment Partners, the combined entity to HFA Holdings Ltd. For further discussion surrounding this transaction see Note 2, “Acquisitions/Dispositions” to the Consolidated Financial Statements.

The Mortgage line of business offers residential mortgage products nationally through its retail, broker and correspondent channels. These products are either sold in the secondary market primarily with servicing rights retained or held as whole loans in the Company’s residential loan portfolio. The line of business services loans for its own residential mortgage portfolio as well as for others. Additionally, the line of business generates revenue through its tax service subsidiary (ValuTree Real Estate Services, LLC) and the Company’s captive reinsurance subsidiary (Twin Rivers Insurance Company, formerly Cherokee Insurance Company).

In addition, the Company reports a Corporate Other and Treasury segment which includes the investment securities portfolio, long-term debt, capital, short-term liquidity and funding activities, balance sheet risk management including derivative hedging activities, and certain support activities not currently allocated to the aforementioned lines of business. Because the business segment results are presented based on management accounting practices, the transition to generally accepted accounting principles creates differences which are reflected in Reconciling Items.

Notes to Consolidated Financial Statements (Unaudited) - Continued

For business segment reporting purposes, the basis of presentation in the accompanying financial tables includes the following:

Net interest income - All net interest income is presented on a fully taxable-equivalent (“FTE”) basis. The revenue gross up has been applied to tax-exempt loans and investments to make them comparable to other taxable products. The segments have also been matched-maturity funds transfer priced, generating credits or charges based on the economic value or cost created by the assets and liabilities of each segment. The mismatch between funds credits and funds charges at the segment level resides in Reconciling Items. The change in the matched-maturity funds mismatch is generally attributable to the corporate balance sheet management strategies.

Provision for loan losses - Represents net loan charge-offs by segment. The difference between the segment net charges-offs and consolidated provision for loan losses is reported in reconciling items.

Provision for income taxes - Calculated using a nominal income tax rate for each segment. The calculation includes the impact of various income adjustments, such as the reversal of the fully taxable-equivalent gross up on tax-exempt assets, tax adjustments and credits that are unique to each business segment. The difference between the calculated provision for income taxes at the segment level and the consolidated provision for income taxes is reported in Reconciling Items.

The Company continues to augment its internal management reporting methodologies. Currently, the lines of business’ financial performance is comprised of direct financial results as well as various allocations that for internal management reporting purposes provide an enhanced view of analyzing the line of business’ financial performance. The internal allocations include the following:

Operational Costs – Expenses are charged to the LOBs based on various statistical volumes multiplied by activity based cost rates. As a result of the activity based costing process, planned residual expenses are also allocated to the LOBs. The recoveries for the majority of these costs are in the Corporate Other and Treasury LOB.

Support and Overhead Costs – Expenses not directly attributable to a specific LOB are allocated based on various drivers (e.g., number of full-time equivalent employees and volume of loans and deposits). The recoveries for these allocations are in the Corporate Other and Treasury LOB.

Sales and Referral Credits – LOBs may compensate another LOB for referring or selling certain products. The majority of the revenue resides in the LOB where the product is ultimately managed.

The application and development of management reporting methodologies is a dynamic process and is subject to periodic enhancements. The implementation of these enhancements to the internal management reporting methodology may materially affect the net income disclosed for each segment with no impact on consolidated amounts. Whenever significant changes to management reporting methodologies take place, the impact of these changes is quantified and prior period information is reclassified wherever practicable. The Company will reflect these reclassified changes in the current period and will update historical results.

Notes to Consolidated Financial Statements (Unaudited) - Continued


	Three Months Ended June 30, 2007
(Dollars in thousands)	Retail	Commercial	Corporate and Investment Banking		Mortgage	Wealth and Investment Management	Corporate Other and Treasury		Reconciling Items		Consolidated
Average total assets	$37,734,467	$35,683,882	$23,722,665		$47,866,786	$8,941,690	$24,380,284		$1,666,683		$179,996,457
Average total liabilities	69,605,990	18,856,568	8,564,146		3,209,740	10,450,872	51,269,511		111,528		162,068,355
Average total equity	-	-	-		-	-	-		17,928,102		17,928,102

Net interest income	$580,514	$220,089	$42,456		$135,485	$86,975	($52,636	)	$182,401		$1,195,284
Fully taxable-equivalent adjustment (FTE)	35	9,359	10,995		-	12	4,237		30		24,668

Net interest income (FTE)¹	580,549	229,448	53,451		135,485	86,987	(48,399	)	182,431		1,219,952
Provision for loan losses²	48,620	7,776	14,600		13,051	2,951	1,259		16,423		104,680

Net interest income after provision for loan losses	531,929	221,672	38,851		122,434	84,036	(49,658	)	166,008		1,115,272
Noninterest income	267,672	74,212	199,155		136,931	249,028	232,638		(5,014	)	1,154,622
Noninterest expense³	550,350	165,311	132,116		197,174	248,244	(37,006	)	(4,995	)	1,251,194

Net income before provision for income taxes	249,251	130,573	105,890		62,191	84,820	219,986		165,989		1,018,700
Provision for income taxes⁴	90,305	29,945	39,806		20,064	31,485	76,166		49,498		337,269

Net income	$158,946	$100,628	$66,084		$42,127	$53,335	$143,820		$116,491		$681,431


	Three Months Ended June 30, 2006
	Retail	Commercial	Corporate and Investment Banking		Mortgage	Wealth and Investment Management	Corporate Other and Treasury		Reconciling Items		Consolidated
Average total assets	$37,904,665	$35,290,908	$23,765,119		$41,088,776	$8,853,497	$31,846,533		$1,994,648		$180,744,146
Average total liabilities	70,386,015	18,088,613	8,872,756		2,164,676	9,689,484	54,341,882		(103,732	)	163,439,694
Average total equity	-	-	-		-	-	-		17,304,452		17,304,452

Net interest income	$590,499	$232,037	$49,706		$149,361	$91,215	($33,729	)	$89,654		$1,168,743
Fully taxable-equivalent adjustment (FTE)	21	9,971	7,500		-	17	3,774		-		21,283

Net interest income (FTE)¹	590,520	242,008	57,206		149,361	91,232	(29,955	)	89,654		1,190,026
Provision for loan losses²	18,871	6,656	(435	)	2,128	751	1,173		22,615		51,759

Net interest income after provision for loan losses	571,649	235,352	57,641		147,233	90,481	(31,128	)	67,039		1,138,267
Noninterest income	265,747	70,825	159,274		100,322	251,088	32,736		(4,623	)	875,369
Noninterest expense³	547,752	167,875	116,916		152,957	249,626	(16,924	)	(4,109	)	1,214,093

Net income before provision for income taxes	289,644	138,302	99,999		94,598	91,943	18,532		66,525		799,543
Provision for income taxes⁴	105,673	31,161	37,621		32,667	34,447	(6,250	)	20,222		255,541

Net income	$183,971	$107,141	$62,378		$61,931	$57,496	$24,782		$46,303		$544,002

¹	Net interest income is fully taxable equivalent and is presented on a matched maturity funds transfer price basis for the line of business.

²	Provision for loan losses represents net charge-offs for the lines of business.

³	For Corporate Other and Treasury, allocations exceeded actual expenses incurred.

⁴	Includes regular income tax provision and taxable-equivalent income adjustment reversal.

Notes to Consolidated Financial Statements (Unaudited) - Continued


	Six Months Ended June 30, 2007
(Dollars in thousands)	Retail	Commercial	Corporate and Investment Banking		Mortgage	Wealth and Investment Management	Corporate Other and Treasury		Reconciling Items		Consolidated
Average total assets	$37,708,718	$35,476,602	$23,844,914		$46,076,743	$9,002,749	$26,870,067		$1,767,448		$180,747,241
Average total liabilities	69,877,778	18,876,856	8,415,681		2,748,331	10,436,881	52,549,590		17,307		162,922,424
Average total equity	-	-	-		-	-	-		17,824,817		17,824,817

Net interest income	$1,156,774	$439,427	$84,465		$266,163	$176,050	($94,673	)	$331,637		$2,359,843
Fully taxable-equivalent adjustment (FTE)	70	18,886	20,946		-	28	8,421		30		48,381

Net interest income (FTE)¹	1,156,844	458,313	105,411		266,163	176,078	(86,252	)	331,667		2,408,224
Provision for loan losses²	93,606	10,722	16,863		23,260	4,011	2,723		9,936		161,121

Net interest income after provision for loan losses	1,063,238	447,591	88,548		242,903	172,067	(88,975	)	321,731		2,247,103
Noninterest income	526,634	144,814	344,475		175,412	533,527	317,619		(8,953	)	2,033,528
Noninterest expense³	1,086,953	334,947	258,339		349,503	514,593	(48,232	)	(8,912	)	2,487,191

Net income before provision for income taxes	502,919	257,458	174,684		68,812	191,001	276,876		321,690		1,793,440
Provision for income taxes⁴	182,792	58,680	65,337		19,184	70,290	86,598		107,832		590,713

Net income	$320,127	$198,778	$109,347		$49,628	$120,711	$190,278		$213,858		$1,202,727


	Six Months Ended June 30, 2006
	Retail	Commercial	Corporate and Investment Banking		Mortgage	Wealth and Investment Management	Corporate Other and Treasury		Reconciling Items		Consolidated
Average total assets	$38,198,537	$34,662,079	$23,518,942		$40,335,162	$8,874,153	$31,399,413		$2,201,563		$179,189,849
Average total liabilities	69,223,914	18,043,042	9,364,062		1,954,111	9,632,596	53,833,275		(39,978	)	162,011,022
Average total equity	-	-	-		-	-	-		17,178,827		17,178,827

Net interest income	$1,165,937	$458,575	$110,489		$298,197	$181,178	($58,213	)	$191,621		$2,347,784
Fully taxable-equivalent adjustment (FTE)	42	19,935	14,107		-	34	7,503		-		41,621

Net interest income (FTE)¹	1,165,979	478,510	124,596		298,197	181,212	(50,710	)	191,621		2,389,405
Provision for loan losses²	38,589	5,559	(830	)	5,000	943	2,167		33,734		85,162

Net interest income after provision for loan losses	1,127,390	472,951	125,426		293,197	180,269	(52,877	)	157,887		2,304,243
Noninterest income	523,260	141,472	315,386		220,668	489,400	45,806		(9,117	)	1,726,875
Noninterest expense³	1,091,736	339,110	250,180		298,804	503,229	(34,407	)	(8,068	)	2,440,584

Net income before provision for income taxes	558,914	275,313	190,632		215,061	166,440	27,336		156,838		1,590,534
Provision for income taxes⁴	204,101	64,664	71,249		75,449	62,037	(16,537	)	54,042		515,005

Net income	$354,813	$210,649	$119,383		$139,612	$104,403	$43,873		$102,796		$1,075,529

¹	Net interest income is fully taxable equivalent and is presented on a matched maturity funds transfer price basis for the line of business.

²	Provision for loan losses represents net charge-offs for the lines of business.

³	For Corporate Other and Treasury, allocations exceeded actual expenses incurred.

⁴	Includes regular income tax provision and taxable-equivalent income adjustment reversal.

Notes to Consolidated Financial Statements (Unaudited) - Continued

Note 14-Accumulated Other Comprehensive Income


(Dollars in thousands)	Pre-tax Amount		Income Tax (Expense) Benefit		After-tax Amount
Accumulated Other Comprehensive Income, Net
Accumulated other comprehensive income, January 1, 2006	$1,513,050		($574,959	)	$938,091
Unrealized net losses on securities	(276,583	)	105,101		(171,482	)
Unrealized net gains on derivatives	6,765		(2,571	)	4,194
Change related to employee benefit plans	1,329		(505	)	824
Reclassification adjustment for realized net gains on securities	4,467		(1,697	)	2,770
Reclassification adjustment for realized net losses on derivatives	3,424		(1,301	)	2,123

Accumulated other comprehensive income, June 30, 2006	$1,252,452		($475,932	)	$776,520


Accumulated other comprehensive income, January 1, 2007	$1,398,409		($472,460	)	$925,949
Unrealized net losses on securities	(58,491	)	22,227		(36,264	)
Unrealized net losses on derivatives	(113,971	)	43,309		(70,662	)
Change related to employee benefit plans	55,637		(21,142	)	34,495
Adoption of SFAS No. 159	237,700		(90,326	)	147,374
Pension plan changes and resulting remeasurement	128,560		(48,853	)	79,707
Reclassification adjustment for realized net gains on securities	(250,188	)	95,071		(155,117	)
Reclassification adjustment for realized net gains on derivatives	(7,410	)	2,816		(4,594	)

Accumulated other comprehensive income, June 30, 2007	$1,390,246		($469,358	)	$920,888

Comprehensive income for the three and six months ended June 30, 2007 and 2006 was calculated as follows:


	Three Months Ended June 30				Six Months Ended June 30
(Dollars in thousands)	2007		2006		2007		2006
Comprehensive income:
Net income	$681,431		$544,002		1,202,727		1,075,529
Other comprehensive income:
Change in unrealized gains (losses) on securities, net of taxes	(190,759	)	(119,800	)	(191,381	)	(168,712	)
Change in unrealized gains (losses) on derivatives, net of taxes	(79,184	)	1,960		(75,256	)	6,317
Change related to employee benefit plans, net of taxes	5,605		-		34,495		824

Total comprehensive income	$417,093		$426,162		970,585		913,958

The components of accumulated other comprehensive income at June 30 were as follows:


(Dollars in thousands)	2007		2006
Unrealized net gain on available for sale securities	$1,258,581		$803,106
Unrealized net loss on derivative financial instruments	(56,361	)	(11,023	)
Employee benefit plans	(281,332	)	(15,563	)

Total accumulated other comprehensive income	$920,888		$776,520

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

SunTrust Banks, Inc. (“SunTrust” or “the Company”), one of the nation’s largest commercial banking organizations, is a financial holding company with its headquarters in Atlanta, Georgia. SunTrust’s principal banking subsidiary, SunTrust Bank, offers a full line of financial services for consumers and businesses through its branches located primarily in Florida, Georgia, Maryland, North Carolina, South Carolina, Tennessee, Virginia, and the District of Columbia. Within its geographic footprint, the Company operates under five business segments: Retail, Commercial, Corporate and Investment Banking (“CIB”), Wealth and Investment Management, and Mortgage. In addition to traditional deposit, credit, and trust and investment services offered by SunTrust Bank, other SunTrust subsidiaries provide mortgage banking, credit-related insurance, asset management, securities brokerage and capital market services. As of June 30, 2007, SunTrust had 1,685 full-service branches, including 347 in-store branches, and continues to leverage technology to provide customers the convenience of banking on the Internet, through 2,533 automated teller machines and via twenty-four hour telebanking.

The following analysis of the financial performance of SunTrust for the second quarter of 2007 should be read in conjunction with the financial statements, notes and other information contained in this document and the 2006 Annual Report found on Form 10-K. Certain reclassifications may be made to prior year financial statements and related information to conform them to the 2007 presentation. In Management’s Discussion and Analysis, net interest income, net interest margin and the efficiency ratios are presented on a fully taxable-equivalent (“FTE”) and annualized basis. The FTE basis adjusts for the tax-favored status of net interest income from certain loans and investments. The Company believes this measure to be the preferred industry measurement of net interest income and it enhances comparability of net interest income arising from taxable and tax-exempt sources.

The Company presents a return on average realized common shareholders’ equity, as well as a return on average common shareholders’ equity (“ROE”). The Company also presents a return on average assets less net unrealized securities gains/losses and a return on average total assets (“ROA”). The return on average realized common shareholders’ equity and return on average assets less net unrealized securities gains/losses exclude realized securities gains and losses, The Coca-Cola Company (“Coke”) dividend, and net unrealized securities gains. Due to its ownership of approximately 43.7 million shares of common stock of The Coca-Cola Company, resulting in an unrealized net gain of $2.3 billion as of June 30, 2007, the Company believes ROA and ROE excluding these impacts from the Company’s securities available for sale portfolio is the more comparative performance measure when being evaluated against other companies. The Company also presents net income available to common shareholders, diluted net income per average common share, an efficiency ratio and noninterest income excluding the gain on sale of shares of The Coca-Cola Company. The Company believes these measures are more indicative of the Company’s performance because they exclude a large securities gain that is not a customer relationship or customer driven transaction. SunTrust presents a tangible efficiency ratio and a tangible equity to tangible assets ratio which exclude the cost of and the other effects of intangible assets resulting from merger and acquisition (“M&A”) activity. The Company provides reconcilements on pages 42 through 43 for all non-US GAAP measures.

The information in this report may contain forward-looking statements. Statements that do not describe historical or current facts, including statements about beliefs and expectations, are forward-looking statements. These statements often include the words “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “targets,” “initiatives,” “potentially,” “probably,” “projects,” “outlook” or similar expressions or future conditional verbs such as “may,” “will,” “should,” “would,” and “could.”

Such statements are based upon the current beliefs and expectations of SunTrust’s management and on information currently available to management. The forward-looking statements are intended to be subject to the safe harbor provided by Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements speak as of the date hereof, and SunTrust does not assume any obligation to update the statements made herein or to update the reasons why actual results could differ from those contained in such statements in light of new information or future events.

Forward-looking statements involve significant risks and uncertainties. Investors are cautioned against placing undue reliance on such statements. Actual results may differ materially from those set forth in the forward-looking statements. Factors that could cause actual results to differ materially from those described in the forward-looking statements can be found in the Company’s 2006 Annual Report on Form 10-K, in the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2007, and in this Quarterly Report on Form 10-Q (at Part II, Item 1A). Those factors include: changes in general business or economic conditions, including customers’ ability to repay debt obligations, could have a material adverse effect on our financial condition and results of operations; our trading assets and financial instruments carried at fair value expose the Company to certain market risks; changes in market interest rates or capital markets could adversely affect our revenues and expenses, the values of assets and obligations, costs of capital, or liquidity; the fiscal and monetary policies of the federal government and its agencies could have a material adverse effect on our earnings; significant changes in securities markets or markets for residential or commercial real estate could harm our revenues and profitability; customers could pursue alternatives to bank deposits, causing us to lose a relatively inexpensive source of funding; customers may decide not to use banks to complete their financial transactions, which could affect net income; we have businesses other than banking, which subjects us to a variety of risks; hurricanes and other natural disasters may adversely affect loan portfolios and operations and increase the cost of doing business; negative public opinion could damage our reputation and adversely impact our business; we rely on other companies for key components of our business infrastructure; we rely on our systems, employees, and certain counterparties, and certain failures could materially adversely affect our operations; we depend on the accuracy and completeness of information about clients and counterparties; regulation by federal and state agencies could adversely affect our business, revenues, and profit margins; competition in the financial services industry is intense and could result in losing business or reducing profit margins; future legislation could harm our competitive position; maintaining or increasing market share depends on market acceptance and regulatory approval of new products and services; our ability to receive dividends from our subsidiaries accounts for most of our revenues and could affect our liquidity and ability to pay dividends; significant legal actions could subject us to substantial uninsured liabilities; we have in the past and may in the future pursue acquisitions, which could affect costs and from which we may not be able to realize anticipated benefits; we depend on the expertise of key personnel without whom our operations may suffer; we may be unable to hire or retain additional qualified personnel and recruiting and compensation costs may increase as a result of turnover, both of which may increase costs and reduce profitability and may adversely impact our ability to implement our business strategy; our accounting policies and methods are key to how we report financial condition and results of operations, and may require management to make estimates about matters that are uncertain; our stock price can be volatile; changes in our accounting policies or in accounting standards could materially affect how we report our financial results and condition; and our disclosure controls and procedures may fail to prevent or detect all errors or acts of fraud; weakness in residential property and mortgage markets could adversely affect us; and we may be required to repurchase mortgage loans or indemnify mortgage loan purchasers as a result of breaches of representations and warranties, borrower fraud, or certain borrower defaults, which could harm our liquidity, results of operations and financial condition.

EARNINGS OVERVIEW

SunTrust reported net income available to common shareholders of $673.9 million for the second quarter of 2007, an increase of $129.9 million, or 23.9%, compared to the same period of the prior year. Diluted earnings per average common share were $1.89 for the three months ended June 30, 2007, an increase of 26.8% as compared to $1.49 for the three months ended June 30, 2006. Net income available to common shareholders for the first six months of 2007 was $1,187.8 million, an increase of $112.3 million, or 10.4%, compared to the same period of the prior year. Reported diluted earnings per average common share were $3.33 and $2.96 for the six months ended June 30, 2007 and 2006, respectively. Excluding the $145.6 million after-tax gain on sale of shares of The Coca-Cola Company, net income available to common shareholders was $528.3 million and $1,042.3 million for the three and six months ended June 30, 2007. Diluted earnings per average common share excluding the Coke stock gain were $1.48 and $2.92 for the three and six months ended June 30, 2007, which is a decline in diluted earnings per common share of $0.01, or 0.7%, and $0.04, or 1.4%, compared to the respective three and six month periods ended June 30, 2006. For further discussion regarding the Coke stock gain and management’s strategy surrounding the Coke stock, refer to the “Securities Available for Sale” section of Management’s Discussion and Analysis.

Fully taxable-equivalent net interest income was $1,220.0 million for the second quarter of 2007, an increase of $30.0 million or 2.5%, from the second quarter of 2006. Net interest margin increased 10 basis points from 3.00% in the second quarter of 2006 to 3.10% in the second quarter of 2007. The increases in fully taxable-equivalent net interest income and net interest margin were largely the result of the balance sheet management strategies executed in the first and second quarters of 2007, which have resulted in improved yields on earning assets, as well as deleveraging the balance sheet and reducing the level of higher-cost wholesale funding.

Fully taxable-equivalent net interest income for the six months ended June 30, 2007 was $2,408.2, an increase of $18.8 million or 0.8%, from the same period in the previous year due to the same factors that impacted the quarter over quarter increase described above. The net interest margin remained flat at 3.06% for the first six months of 2006 and the first six months of 2007.

Provision for loan losses was $104.7 million in the second quarter of 2007, an increase of $52.9 million, or 102.1%, from the same period of the prior year. The provision for loan losses was $16.5 million higher than net charge-offs of $88.2 million for the second quarter of 2007 as the level of net charge-offs and nonperforming and past due loans has increased. The allowance for loan and lease losses (“ALLL”) decreased $11.5 million, or 1.1%, from June 30, 2006. The decrease in the ALLL corresponded to a 1.2% decrease in period-end loans compared to June 30, 2006, which is attributable to the Company’s balance sheet management strategies. Annualized net charge-offs to average loans were 0.30% for the second quarter of 2007 compared to 0.10% for the same period last year. The second quarter of 2006 was a historically low quarter for net charge-offs, and the year over year increase reflects the trend toward normalization of net charge-off levels as well as some deterioration in certain segments of the consumer real estate market. For the six months ended June 30, 2007, the provision for loan losses was $161.1 million, an increase of $75.9 million, or 89.1%, from the same period of the prior year. The increase in the provision was primarily attributable to the same factors that impacted the quarter over quarter increase.

Noninterest income increased $279.2 million, or 31.9%, from the second quarter of 2006, driven in large part by the $234.8 million pre-tax gain on sale of Coke stock. Noninterest income excluding the gain on sale of Coke stock increased $44.4 million, or 5.2%, compared to the second quarter of 2006. Other drivers of the increase were growth in retail investment services, card fees, mortgage production and servicing-related income, and other noninterest income mainly due to gains generated on private equity investments and structured leasing transactions. These increases were offset by a decline in trading income due to negative market value adjustments on assets and liabilities carried at fair value, as well as a decline in trust income.

For the first six months of 2007, noninterest income was $2,033.5 million, up $306.6 million, or 17.8%, from $1,726.9 million for the same period in 2006. A significant portion of the increase was related to the gain on sale of Coke stock. Excluding the gain on sale of Coke stock, noninterest income increased $71.8 million, or 4.2%, compared to the six months ended June 30, 2006. Also contributing to the increase were strong card fees, retail investment services, trading account profits and commissions, as well as the $32.3 million gain on sale upon the merger of Lighthouse Partners recognized in the first quarter of 2007.

Total noninterest expense was $1,251.2 million for the second quarter of 2007, an increase of $37.1 million, or 3.1%, from the same period of the prior year. The increase was primarily due to the Company’s election to record certain newly-originated mortgage loans held for sale at fair value during the second quarter of 2007, which resulted in an approximate $12.4 million increase in compensation expense, as origination costs associated with these loans are no longer deferred, and the reversal of a leverage lease-related reserve in the second quarter of 2006 that reduced noninterest expense by $10.9 million. Considering the impact of these two factors, the remaining slight increase in noninterest expense was primarily in personnel and occupancy related expenses. This low level of core expense growth demonstrates the initial success of the Company’s E²Efficiency and Productivity initiatives. For further details surrounding the Company’s Excellence in Execution, (“E²”) Efficiency and Productivity initiatives, refer to the “Noninterest Expense” section of Management’s Discussion and Analysis.

For the first six months of 2007, noninterest expense was $2,487.2 million, up $46.6 million, or 1.9%, from $2,440.6 million for the same period in 2006. The factors causing this increase were similar to those noted in the quarter over quarter discussion above.


Selected Quarterly Financial Data		Table 1

Three Months Ended
June 30

Six Months Ended

June 30

(Dollars in millions, except per share data) (Unaudited)

2007

2006

2007

2006

Summary of Operations

Interest, fees and dividend income

$2,543.9

$2,423.1

$5,071.9

$4,701.8

Interest expense

1,348.6

1,254.3

2,712.1

2,354.0

Net interest income

1,195.3

1,168.8

2,359.8

2,347.8

Provision for loan losses

104.7

51.8

161.1

85.2

Net interest income after provision for loan losses

1,090.6

1,117.0

2,198.7

2,262.6

Noninterest income

1,154.6

875.4

2,033.5

1,726.9

Noninterest expense

1,251.2

1,214.1

2,487.2

2,440.6

Income before provision for income taxes

994.0

778.3

1,745.0

1,548.9

Provision for income taxes

312.6

234.3

542.3

473.4

Net income

681.4

544.0

1,202.7

1,075.5

Preferred stock dividends

7.5

14.9

Net income available to common shareholders

$673.9

$544.0

$1,187.8

$1,075.5

Net income available to common shareholders excluding gain on sale of Coke stock

$528.3

$544.0

$1,042.3

$1,075.5

Net interest income-FTE

1,220.0

1,190.0

2,408.2

2,389.4

Total revenue - FTE

2,374.6

2,065.4

4,441.7

4,116.3

Noninterest income excluding gain on sale of Coke stock

919.8

875.4

1,798.7

1,726.9

Net income per average common share:

Diluted

1.89

1.49

3.33

2.96

Diluted excluding gain on sale of Coke stock

1.48

1.49

2.92

2.96

Basic

1.91

1.51

3.37

2.98

Dividends paid per average common share

0.73

0.61

1.46

1.22

Book value per common share

48.33

47.85

Market price:

High

94.18

78.33

94.18

78.33

Low

78.16

72.56

78.16

69.68

85.74

76.26

85.74

76.26

Selected Average Balances

Total assets

$179,996.5

$180,744.1

$180,747.2

$179,189.8

Earning assets

157,594.2

158,888.8

158,528.7

157,324.5

Loans

118,164.6

120,144.5

119,830.5

118,214.1

Consumer and commercial deposits

97,926.3

97,172.3

97,859.6

96,237.6

Brokered and foreign deposits

23,983.4

27,194.3

25,341.2

25,930.0

Total shareholders’ equity

17,928.1

17,304.4

17,824.8

17,178.8

Average common shares-diluted (thousands)

356,008

364,391

356,608

363,917

Average common shares-basic (thousands)

351,987

361,267

352,713

360,604

Financial Ratios (Annualized)

Return on average total assets

1.52

1.21

1.34

1.21

Return on average assets less net unrealized securities gains

1.18

1.18

1.16

1.19

Return on average common shareholders’ equity

15.51

12.61

13.83

12.63

Return on average realized common shareholders’ equity

12.71

12.90

12.63

12.98

Net interest margin

3.10

3.00

3.06

3.06

Efficiency ratio

52.69

58.78

56.00

59.29

Efficiency ratio excluding gain on sale of Coke stock

58.47

58.78

59.12

59.29

Tangible efficiency ratio

51.64

57.53

54.91

58.00

Tangible equity to tangible assets

5.85

5.81

Total average shareholders’ equity to average assets

9.96

9.57

9.86

9.59

Capital Adequacy

Tier 1 capital ratio

7.49

7.31

Total capital ratio

10.67

10.70

Tier 1 leverage ratio

7.11

6.82


Selected Quarterly Financial Data, continued		Table 1


	Three Months Ended June 30				Six Months Ended June 30
(Dollars in millions, except per share data) (Unaudited)	2007		2006		2007		2006
Reconcilement of Non US GAAP Financial Measures
Net income	$681.4		$544.0		$1,202.7		$1,075.5
Securities (gains)/losses, net of tax	(146.6)		(3.6)		(146.6)		(3.7)

Net income excluding net securities (gains)/losses	534.8		540.4		1,056.1		1,071.8
Coke stock dividend, net of tax	(13.2)		(13.3)		(27.8)		(26.6)

Net income excluding net securities (gains)/losses and the Coke stock dividend	521.6		527.1		1,028.3		1,045.2
Preferred stock dividends	7.5		-		14.9		-

Net income available to common shareholders excluding net securities (gains)/losses and the Coke stock dividend	$514.1		$527.1		$1,013.4		$1,045.2

Net income available to common shareholders	$673.9		$544.0		$1,187.8		$1,075.5
Gain on sale of Coke stock, net of tax	(145.6)		-		(145.6)		-

Net income available to common shareholders excluding gain on sale of Coke stock ¹	$528.3		$544.0		$1,042.2		$1,075.5

Diluted net income per average common share	$1.89		$1.49		$3.33		$2.96
Impact of excluding gain on sale of Coke stock	(0.41)		-		(0.41)		-

Diluted net income per average common share excluding gain on sale of Coke stock ¹
	$1.48		$1.49		$2.92		$2.96

Efficiency ratio ²	52.69	%	58.78	%	56.00	%	59.29	%
Impact of excluding amortization of intangible assets	(1.05)		(1.25)		(1.09)		(1.29)

Tangible efficiency ratio ³	51.64	%	57.53	%	54.91	%	58.00	%

Efficiency ratio ²	52.69	%	58.78	%	56.00	%	59.29	%
Impact of gain on sale of Coke stock	5.78		-		3.12		-

Efficiency ratio excluding gain on sale of Coke stock ¹	58.47	%	58.78	%	59.12	%	59.29	%

Total average assets	$179,996.5		$180,744.1		$180,747.2		$179,189.8
Average net unrealized securities gains	(2,398.7)		(1,528.0)		(2,352.2)		(1,570.2)

Average assets less net unrealized securities gains	$177,597.8		$179,216.1		$178,395.0		$177,619.6

Total average common shareholders’ equity	$17,428.1		$17,304.4		$17,324.8		$17,178.8
Average accumulated other comprehensive income	(1,206.5)		(915.9)		(1,140.9)		(939.7)

Total average realized common shareholders’ equity	$16,221.6		$16,388.5		$16,183.9		$16,239.1

Return on average total assets	1.52	%	1.21	%	1.34	%	1.21	%
Impact of excluding net realized and unrealized securities (gains)/losses and the Coke stock dividend	(0.34)		(0.03)		(0.18)		(0.02)

Return on average total assets less net unrealized securities gains ⁴	1.18	%	1.18	%	1.16	%	1.19	%

Return on average common shareholders’ equity	15.51	%	12.61	%	13.83	%	12.63	%
Impact of excluding net realized and unrealized securities (gains)/losses and the Coke stock dividend	(2.80)		0.29		(1.20)		0.35

Return on average realized common shareholders’ equity ⁵	12.71	%	12.90	%	12.63	%	12.98	%

Net interest income	$1,195.3		$1,168.8		$2,359.8		$2,347.8
FTE adjustment	24.7		21.2		48.4		41.6

Net interest income-FTE	1,220.0		1,190.0		2,408.2		2,389.4
Noninterest income	1,154.6		875.4		2,033.5		1,726.9

Total revenue-FTE	$2,374.6		$2,065.4		$4,441.7		$4,116.3

Noninterest income	$1,154.6		$875.4		$2,033.5		$1,726.9
Impact of gain on sale of Coke stock	(234.8)		-		(234.8)		-

Noninterest income excluding gain on sale of Coke stock ¹	$919.8		$875.4		$1,798.7		$1,726.9


Selected Quarterly Financial Data, continued		Table 1


	As of June 30
(Dollars in millions) (Unaudited)	2007		2006
Total shareholders’ equity	$17,368.9		$17,423.9
Goodwill	(6,897.1)		(6,900.2)
Other intangible assets including mortgage servicing rights (“MSRs”)	(1,290.5)		(1,141.3)
Mortgage servicing rights	942.0		720.4

Tangible equity	$10,123.3		$10,102.8

Total assets	$180,314.4		$181,143.4
Goodwill	(6,897.1)		(6,900.2)
Other intangible assets including MSRs	(1,290.5)		(1,141.3)
Mortgage servicing rights	942.0		720.4

Tangible assets	$173,068.8		$173,822.3

Tangible equity to tangible assets	5.85	%	5.81	%

SunTrust presents net income available to common shareholders, noninterest income, diluted net income per average common share, and efficiency ratio excluding the gain on sale of Coke stock. The Company believes these measures are more indicative of the Company’s performance because they exclude a large securities gain that is not a customer relationship or customer driven transaction.

Computed by dividing noninterest expense by total revenue - FTE. The efficiency ratios are presented on an FTE basis. The FTE basis adjusts for the tax-favored status of net interest income from certain loans and investments. The Company believes this measure to be the preferred industry measurement of net interest income and it enhances comparability of net interest income arising from taxable and tax-exempt sources.

SunTrust presents a tangible efficiency ratio which excludes the cost of intangible assets. The Company believes this measure is useful to investors because, by removing the effect of intangible asset costs (the level of which may vary from company to company) it allows investors to more easily compare the Company’s efficiency to other companies in the industry. This measure is utilized by management to assess the efficiency of the Company and its lines of business.

⁴	Computed by dividing annualized net income, excluding tax effected net securities gains/losses and the Coke stock dividend, by average assets less net unrealized gains/losses on securities.

⁵	Computed by dividing annualized net income available to common shareholders, excluding tax effected net securities gains/losses and the Coke stock dividend, by average realized common shareholders’ equity.

CONSOLIDATED FINANCIAL PERFORMANCE

Financial Assets and Liabilities Carried at Fair Value

Adoption of Fair Value Accounting Standards

During the first quarter of 2007, the Company evaluated the provisions of the recently issued fair value accounting standards, SFAS Nos. 157 and 159. SFAS No. 157 clarifies how to measure fair value when such measurement is otherwise required by US GAAP, and SFAS No. 159 provides companies with the option to elect to carry specific financial assets and financial liabilities at fair value. While the provisions of SFAS No. 157 establish clearer and more consistent criteria for measuring fair value, the primary objective of SFAS No. 159 is to expand the use of fair value in US GAAP, with the focus on eligible financial assets and financial liabilities. As a means to expand the use of fair value, SFAS No. 159 allows companies to avoid some of the complexities of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and more closely align the economics of their business with their results of operations without having to explain a mixed attribute accounting model. Based on the Company’s evaluation of these standards and its balance sheet management strategies and objectives, the Company early adopted these fair value standards as of January 1, 2007.

In certain circumstances, fair value enables a company to more accurately align its financial performance with the economic value of actively traded or hedged assets or liabilities. Fair value enables a company to mitigate the non-economic earnings volatility caused from financial assets and financial liabilities being carried at different bases of accounting, as well as to more accurately portray the active and dynamic management of a company’s balance sheet.

Fixed Rate Debt

Available for Sale and Trading Securities

The Company elected to move these available for sale securities to trading securities in order to be able to more actively trade a more significant portion of its investment portfolio and reduce the overall size of the available for sale portfolio. In determining the assets to be sold, the Company considered economic factors, such as yield and duration, in relation to its balance sheet strategy for the securities portfolio. In evaluating its total available for sale portfolio of approximately $23 billion at January 1, 2007, the Company determined that approximately $3 billion of securities were not available or were not practical to be fair valued and reclassified to trading under SFAS No. 159, as these securities had matured or been called during the quarter, were subject to business restrictions, were privately placed or had nominal principal amounts. Approximately $5 billion of securities aligned with the Company’s recent balance sheet strategy, due to the nature of the assets (such as 30-year fixed rate MBS, 10/1 ARMs, floating rate ABS and municipal bonds); therefore, the securities continued to be classified as available for sale. These securities yielded over 5.6%, had a duration over 4.0%, and were in a $6.7 million net unrealized gain position as of January 1, 2007. The remaining $15 billion of securities, which included hybrid ARMs, CMBS, CMO and MBS (excluding those classes of mortgage-backed securities that remained classified as securities available for sale), yielded approximately 4.5% and had a duration under 3.0%. The approximate $600 million of securities that were purchased in the first quarter and originally classified as available for sale were similar to the securities reclassified to trading on January 1, 2007 upon adoption of SFAS No. 159; accordingly, the Company reclassified these securities to trading pursuant to the provisions of SFAS No. 159.

During the second quarter of 2007, the Company sold substantially all of the $16.0 billion in securities transferred to trading at prices that, in the aggregate and including the hedging gains and losses, approximated the fair value of the securities at March 31, 2007, and terminated the interest rate derivatives it had entered into as hedges of the fair value. During the second quarter of 2007, the Company made additional purchases of approximately $5.4 billion of treasury bills and $4.3 billion of agency notes classified as trading and approximately $2.0 billion of 30-year fixed-rate MBS classified as securities available for sale. The 30-year fixed-rate MBS that were purchased during the second quarter were a similar asset type to the securities that remained classified as available for sale. These securities yield over 5.6% and have an effective duration of approximately 5.7%. As of June 30, 2007 $9.5 billion of treasury bills and agency notes classified as trading and approximately $7.5 billion of 30-year fixed-rate MBS classified as securities available for sale were outstanding.

Mortgage Loans Held for Sale

In the second quarter of 2007, the Company began recording at fair value certain newly-originated mortgage loans held for sale based upon defined product criteria. SunTrust chose to fair value these mortgage loans held for sale in order to eliminate the complexities and inherent difficulties of achieving hedge accounting and to better align reported results with the underlying economic changes in value of the loans and related hedge instruments. During the second quarter of 2007, $5.2 billion of newly-originated mortgage loans held for sale were recorded at fair value. This election impacts the timing and recognition of origination fees and costs, as well as servicing value. Specifically, origination fees and costs, which had been appropriately deferred under SFAS No. 91 and recognized as part of the gain/loss on sale of the loan, are now recognized in earnings at the time of origination. For the three months ended June 30, 2007, approximately $11.9 million in loan origination fees and approximately $12.4 million in origination loan costs were recognized due to this fair value election. The servicing value, which had been recorded at the time the loan was sold as a mortgage servicing right, is now included in the fair value of the loan and recognized at origination of the loan. The Company began using derivatives to economically hedge changes in servicing value as a result of including the servicing value in the fair value of the loan in accordance with provisions of SFAS No. 157. The estimated impact from recognizing servicing value, net of related hedging costs, as part of the fair value of the loan is captured in the overall change in mortgage production income.

The Company’s mortgage loans held for sale (i.e., mortgage warehouse) are carried at either the lower of cost or market or fair value. Under either accounting basis, the value of these loans is susceptible to declines in market value. Recent market events have affected the value and liquidity of mortgage loans, but to varying degrees depending on the nature and credit quality of the mortgage loans. The carrying value of the Company’s mortgage warehouse was $11.7 billion as of June 30, 2007. The warehouse contained no subprime mortgage loans and approximately $500 million of Alt-A loans, of which 97% were 1st lien loans with credit characteristics very similar to our 1st lien mortgage portfolio and reflect the Company’s recently more stringent underwriting guidelines. The Company’s Alt-A warehouse production in the second quarter declined to 2% of total production, all of which was 1st lien product that is being actively sold into the secondary market. In addition, the Company is no longer originating 2nd lien Alt-A product. The new production in the mortgage warehouse includes improved loan to value ratios, higher credit scores, and tighter documentation standards, which have resulted in increased levels of full documentation loans and minimized the amount of stated income/stated asset production. However, similar to the first quarter, the Company continued to experience a degree of losses from early payment default repurchases, price adjustments in lieu of repurchases, and marking-to-market and selling loans held in the warehouse at current market prices, which currently reflect a liquidity and pricing discount due to the residual impact of the subprime mortgage situation. Similar losses could occur in future periods if current market conditions continue or worsen.

Securitization and Trading Assets

As part of its securitization and trading activities, the Company often warehouses assets prior to sale or securitization, retains interests in securitizations, and maintains a portfolio of loans that it trades in the secondary market. At January 1, 2007, the Company transferred to trading assets approximately $600 million of loans, substantially all of which were purchased from the market for the purpose of sales into securitizations, which were previously classified as loans held for sale. In addition, the Company owned approximately $9 million of residual interests from securitizations that were previously classified as securities available for sale, which were transferred to trading assets. Pursuant to the provisions of SFAS No. 159, the Company elected to carry warehoused and trading loans at fair value, in order to reflect the active management of these positions and, in certain cases, to align the economics of these instruments with the hedges that the Company executes on certain of these loans and to reclassify its residual interests to trading assets, consistent with other residual positions the Company owns. During the second quarter of 2007, approximately $200 million of the $600 million of trading loans transferred into trading assets as of January 1, 2007 were sold as part of the Company’s loan trading and securitization activities and additional loans were purchased and recorded at fair value. The following is a complete listing of the fair value of the residual interests from securitizations and/or structured asset sales retained by the Company:


(Dollars in millions) (Unaudited)
Commercial loans and bonds		$25.3
Corporate loans		57.3
Debt securities		1.1
Student loans		19.8
Mortgage loans		14.4

The Company employed stringent underwriting criteria related to the underlying collateral of these residual interests. The assets securing these residual interests are primarily residential, commercial, corporate, and government sponsored student loans, along with asset-backed and trust preferred securities. The securitizations are performing as anticipated and have not experienced significant residual effects from the recent deterioration in the loan market. Despite the performance of these securitizations, the market values as of June 30, 2007 began to reflect some of the stress in the market and future prices could potentially reflect further pricing pressure. Currently, the Company intends to hold these residual interests to maturity as we believe that the current market valuations do not reflect the economic value of securities.

The total value of the Company’s securitization warehouses that it has elected to carry at fair value, excluding certain mortgage loan warehouses, was approximately $1.1 billion as of June 30, 2007. The assets held in the warehouses at June 30, 2007 include Small Business Association loans (“SBA”), collateralized debt obligation (“CDO”) and collateralized loan obligation (“CLO”) securities, and residential and commercial loans. These warehouses were marked-to-market as of June 30, 2007 and reflect the Company’s best estimate of fair value taking into consideration the markets into which these assets will be securitized and the credit quality of the assets held in the warehouse. These products are susceptible to the market values which have recently been volatile and declining due to the residual effect of the credit related issues impacting the mortgage loan market. The value of these loans could be adversely impacted by further declines in market prices. Management limits the size and the Company’s overall exposure to these warehouses, as well as actively monitors the estimated market and economic value of these assets and determines the most advantageous approach to managing these assets.

Securities Available for Sale

The securities portfolio is managed as part of the overall asset and liability management process to optimize income and market performance over an entire interest rate cycle while mitigating risk. The Company continued the balance sheet management strategies begun in 2006 to improve the yield, reduce the size, extend the duration, and enhance the quality of the securities portfolio.

The average yield for the second quarter of 2007 improved to 6.07% compared to 4.83% in the second quarter of 2006. The size of the securities portfolio, based on fair value, was $14.7 billion as of June 30, 2007, a decrease of $10.4 billion, or 41.3% from December 31, 2006. This decrease resulted from the transfer of approximately $16.0 billion in available for sale securities to trading assets during the first quarter of 2007 in conjunction with the Company’s adoption of SFAS No. 159. During the second quarter of 2007, the fair value of the securities portfolio increased $1.6 billion from March 31, 2007 to June 30, 2007 as longer duration, high quality mortgage-backed securities issued by Federal Agencies were purchased. The portfolio’s effective duration increased to 5.2% as of June 30, 2007 from 3.1% as of December 31, 2006. Effective duration is a measure of price sensitivity of a bond portfolio to an immediate change in interest rates, taking into consideration embedded options. An effective duration of 5.2% suggests an expected price change of 5.2% for a one percent instantaneous change in interest rates. The increase in duration was primarily the result of reclassifying shorter duration securities to trading in the first quarter of 2007, and purchasing longer duration securities in the second quarter. The credit quality of the securities portfolio has improved, as reflected in significant reductions in asset-backed securities and corporate bonds. As of June 30, 2007, approximately 97% of the securities were rated “AAA,” the highest possible rating, by nationally recognized rating agencies. The current mix of securities as of June 30, 2007 and December 31, 2006 is shown in Table 2 below.

Net securities gains of $236.4 million were recognized in the second quarter of 2007, virtually all from the sale of 4.5 million shares, or approximately 9% of the Company’s holdings, of the common stock of The Coca-Cola Company. As part of its capital management strategies, SunTrust sold a portion of the Coke holdings which were considered capital inefficient, meaning they could not be leveraged in our businesses, were not pledged for collateral purposes, and did not receive capital credit from regulatory or rating agencies. The Company is evaluating alternatives, including tax advantaged strategies for the remaining 43.7 million shares it owns. The carrying value of available for sale securities reflected $2.0 billion in net unrealized gains as of June 30, 2007, comprised of a $2.3 billion unrealized gain from the Company’s remaining shares of The Coca-Cola Company and a $0.3 billion net unrealized loss on the remainder of the portfolio. The Company reviews all of its securities with unrealized losses for other-than-temporary impairment at least quarterly. As a result of these reviews in the second quarter of 2007, the Company determined that no impairment charges were deemed necessary this quarter, since as of June 30, 2007, it has the ability and intent to hold the remaining securities with unrealized losses until recovery.


Securities Available for Sale		Table 2


	June 30, 2007		December 31, 2006
(Dollars in millions) (Unaudited)	Amortized Cost	Fair Value	Amortized Cost	Fair Value
U.S. Treasury and other U.S. government agencies and corporations	$257.1	$251.1	$1,608.0	$1,600.5
States and political subdivisions	1,038.9	1,034.6	1,032.3	1,041.1
Asset-backed securities	287.3	288.6	1,128.0	1,112.3
Mortgage-backed securities	9,974.7	9,730.8	17,337.3	17,130.9
Corporate bonds	27.3	26.6	468.9	462.8
Common stock of The Coca-Cola Company	0.1	2,282.7	0.1	2,324.8
Other securities¹	1,104.9	1,111.6	1,423.8	1,429.3

Total securities available for sale	$12,690.3	$14,726.0	$22,998.4	$25,101.7

¹ Includes $702.3 million and $729.4 million as of June 30, 2007 and December 31, 2006, respectively, of Federal Home Loan Bank and Federal Reserve Bank stock stated at par value.

Trading Assets and Liabilities

The increase in the fair value of trading assets from $2.8 billion at December 31, 2006 to $13.0 billion at June 30, 2007 was primarily related to the purchases of $11.4 billion of shorter duration trading securities, namely treasury bills and agency notes, which had been purchased to satisfy customer collateral requirements and to reduce the amount of potential market volatility. During the first quarter of 2007 the Company transferred approximately $16.0 billion in securities which were previously classified as available for sale to trading securities as part of the Company’s balance sheet management strategies. The decision to reclassify certain securities available for sale to trading assets was determined based on the characteristics of the security. The considerations included significantly altering the mix and size of the portfolio’s assets, reducing credit-related exposure, reducing low-yielding assets and efficient capital consumption, while maintaining the overall balance sheet duration target. Substantially all of the following security types were reclassified to trading assets: treasury notes, agency debentures, fixed-rate asset-backed securities, corporate bonds, and mortgage-backed securities (except for longer duration adjustable-rate and fixed-rate pass-through securities). During the second quarter of 2007, substantially all of the $16.0 billion of reclassified trading assets were sold and additional trading securities were purchased. The Company intends to maintain an active trading portfolio carried at fair value for balance sheet management purposes and will manage the potential market volatility of these securities with appropriate duration and/or hedging strategies.


Trading Assets and Liabilities		Table 3


(Dollars in millions) (Unaudited)	June 30 2007	December 31 2006

Trading Assets
U.S. government and agency securities	$9,531.8	$838.3
Corporate and other debt securities	398.0	409.0
Equity securities	322.2	2.3
Mortgage-backed securities	263.5	140.5
Derivative contracts	1,075.1	1,064.3
Municipal securities	282.2	293.3
Commercial paper	82.5	29.9
Securitization warehouses	958.7	-	¹
Other securities	131.0	-

Total trading assets	$13,045.0	$2,777.6


Trading Liabilities
U.S. government and agency securities	$512.0	$382.8
Corporate and other debt securities	20.8	-
Equity securities	0.4	0.1
Mortgage-backed securities	26.9	-
Derivative contracts	1,596.2	1,251.2

Total trading liabilities	$2,156.3	$1,634.1

¹ Prior to adopting SFAS No. 159, the balance of assets held in securitization warehouses as of December 31, 2006 was $869.0 million; $542.5 million of these assets were classified as loans held for sale and the remainder was included in the “U.S. government and agency securities” balance in trading assets.

Net Interest Income/Margin

Fully-taxable net interest income was $1,220.0 million for the second quarter of 2007, an increase of $30.0 million, or 2.5%, from the second quarter of 2006. The increase in net interest income was primarily the result of balance sheet management strategies implemented late in the first quarter of 2007 and during the second quarter of 2007. Lower yielding loans and available for sale securities were reclassified to loans held for sale and trading securities, respectively, and subsequently sold to enable a repositioning of the investment portfolio and a reduction in the higher cost funding supporting these assets. As a result, total earning assets declined $1.3 billion, or 0.8%, in the second quarter of 2007 compared to the second quarter of 2006.

During the second quarter of 2007, loans averaged $118.2 billion, a decline of $2.0 billion, or 1.6%, from the same period of 2006. This decline was a result of balance sheet management strategies over the past twelve months, including the sale of $5.9 billion in mortgage loans, $1.2 billion in student loans, and $1.9 billion in corporate loans. Average securities available for sale were $12.1 billion in the second quarter of 2007, a decrease of $13.5 billion from the second quarter of 2006. In the first quarter of 2007, approximately $16.0 billion of securities available for sale were reclassified to trading to more actively trade a significant portion of this portfolio and to reduce the overall size of the available for sale investments.

Average consumer and commercial deposits increased $0.8 billion or 0.8% in the second quarter of 2007, compared to the second quarter of 2006, with the increase primarily driven by the $3.3 billion increase in NOW account balances and $2.7 billion of growth in higher cost certificates of deposits, partially offset by lower money market accounts of $3.3 billion and demand deposits of $1.5 billion. The Company continues to pursue deposit growth initiatives aimed at product promotions, as well as increasing our presence in specific markets within our footprint.

The net interest margin increased 10 basis points from 3.00% in the second quarter of 2006 to 3.10% in the second quarter of 2007. The decline in average earning assets enabled a reduction in higher cost funding, thus improving the margin. The earning asset yield improved 37 basis points from 6.17% in the second quarter of 2006 to 6.54% in the second quarter of 2007, while the cost of interest-bearing liabilities increased 28 basis points from 3.82% to 4.10% for the periods ending the second quarter of 2006 and the second quarter of 2007, respectively.

This improvement in net interest margin was despite the continued flat yield curve. The Federal Reserve Bank Fed Funds rate averaged 5.25% for the second quarter of 2007, an increase of 34 basis points over the second quarter of 2006 average, and one-month LIBOR increased 16 basis points from the second quarter of 2006 to 5.32% in the second quarter of 2007. In contrast, the five-year swap averaged 5.25%, a decrease of 24 basis points over the second quarter 2006 average, and the ten-year swap rate decreased 21 basis points over the same time period to an average of 5.40% in the second quarter of 2007.

For the first six months of 2007, net interest income was $2,408.2 million, an increase of $18.8 million, or 0.8% from the first six months of 2006. The primary contributor to the increase was the 0.8% growth in earning assets, as the margin remained unchanged at 3.06% for the first six months of 2007 compared to 2006. Average earning assets increased $1.2 billion, or 0.8% during the first six months of 2007 compared to 2006 as increases in trading assets of $13.5 billion, loans of $1.6 billion and loans held for sale of $1.7 billion were partially offset by a decrease in investment securities of $15.3 billion. The earning asset yield improved 43 basis points from 6.08% for the six months ended June 30, 2006 to 6.51% for the six months ended June 30, 2007, while the cost of interest bearing liabilities over the same period increased 46 basis points. The changes in the balance sheet were the result of management’s strategies that began in the second quarter of 2006 and were accelerated in the first half of 2007, resulting in a stabilization of the margin from the six months ended 2006 to the same period of 2007.

Average consumer and commercial deposits increased $1.6 billion, or 1.7%, for the first six months of 2007 compared to the first six months of 2006. The increase was primarily due to growth in higher cost certificates of deposit of $4.0 billion and NOW accounts of $3.0 billion, partly offset by declines in money market accounts of $3.4 billion and demand deposits of $1.7 billion.

Interest income that the Company was unable to recognize on nonperforming loans had a negative impact on net interest margin of four basis points for the second quarter of 2007 and three basis points for the first six months of 2007 as nonaccrual loans increased $99.5 million, or 15.6%, from March 31, 2007 and $233.0 million, or 46.3%, from December 31, 2006. There was a negative impact of two and one basis points for the three and six months ended June 30, 2006, respectively. Table 4 contains more detailed information concerning average loans, yields and rates paid.

Consolidated Daily Average Balances, Income/Expense and Average Yields Earned and Rates Paid

Table 4


		Three Months Ended
		June 30, 2007					June 30, 2006
(Dollars in millions; yields on taxable-equivalent basis) (Unaudited)		Average Balances		Income/ Expense	Yields/ Rates		Average Balances		Income/ Expense	Yields/ Rates
Assets
Loans:¹
Real estate 1-4 family		$30,754.4		$493.2	6.42	%	$34,348.0		$515.1	6.00	%
Real estate construction		13,710.1		259.4	7.59		12,180.6		226.4	7.45
Real estate home equity lines		13,849.7		272.4	7.89		13,517.5		253.6	7.52
Real estate commercial		12,731.8		220.8	6.95		12,840.8		215.5	6.73
Commercial - FTE²		33,607.7		539.6	6.44		33,993.0		516.7	6.10
Credit card		403.7		5.9	5.80		307.0		4.6	5.96
Consumer - direct		4,347.5		78.2	7.21		4,251.1		75.9	7.16
Consumer - indirect		8,063.6		123.1	6.12		8,385.8		117.0	5.60
Nonaccrual and restructured		696.1		4.8	2.76		320.7		3.1	3.88

Total loans		118,164.6		1,997.4	6.78		120,144.5		1,927.9	6.44
Securities available for sale:
Taxable		11,014.3		167.7	6.09		24,621.2		294.8	4.79
Tax-exempt - FTE²		1,041.2		15.2	5.85		933.6		13.7	5.85

Total securities available for sale - FTE		12,055.5		182.9	6.07		25,554.8		308.5	4.83
Funds sold and securities purchased under agreements to resell		1,038.1		13.2	5.04		1,244.1		15.2	4.83
Loans held for sale		13,454.3		200.4	5.96		9,929.3		163.7	6.59
Interest-bearing deposits		24.1		0.3	5.74		27.0		0.3	4.73
Interest earning trading assets		12,857.6		174.3	5.44		1,989.1		28.7	5.78

Total earning assets		157,594.2		2,568.5	6.54		158,888.8		2,444.3	6.17
Allowance for loan and lease losses		(1,037.6	)				(1,050.1	)
Cash and due from banks		3,427.7					3,899.6
Premises and equipment		1,980.1					1,908.0
Other assets		14,646.8					14,660.1
Noninterest earning trading assets		986.6					909.7
Unrealized gains on securities available for sale		2,398.7					1,528.0

Total assets		$179,996.5					$180,744.1

Liabilities and Shareholders’ Equity
Interest-bearing deposits:
NOW accounts		$20,065.8		$119.0	2.38	%	$16,811.2		$67.0	1.60	%
Money market accounts		21,773.3		142.0	2.62		25,091.3		163.4	2.61
Savings		4,786.7		14.8	1.24		5,161.0		16.2	1.26
Consumer time		16,942.3		190.5	4.51		15,471.7		146.7	3.80
Other time		11,962.4		144.5	4.85		10,779.1		114.8	4.27

Total interest-bearing consumer and commercial deposits	<