Edgar Filing: SUNTRUST BANKS INC

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, 2010

[] 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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files).

Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer x		Accelerated filer ¨
Non-accelerated filer ¨		Smaller reporting company ¨
(Do not check if a smaller reporting company)

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 29, 2010, 499,934,095 shares of the Registrant's Common Stock, $1.00 par value, were outstanding.

TABLE OF CONTENTS


			Page
Glossary of Defined Terms			i -iii

PART I FINANCIAL INFORMATION

	Item 1.	Financial Statements (Unaudited)	1
		Consolidated Statements of Income/(Loss)	1
		Consolidated Balance Sheets	2
		Consolidated Statements of Shareholders’ Equity	3
		Consolidated Statements of Cash Flows	4
		Notes to Consolidated Financial Statements	5

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	66
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	109
	Item 4.	Controls and Procedures	109

PART II OTHER INFORMATION

	Item 1.	Legal Proceedings	109
	Item 1A.	Risk Factors	109
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	112
	Item 3.	Defaults Upon Senior Securities	112
	Item 4.	(Removed and Reserved)	112
	Item 5.	Other Information	112
	Item 6.	Exhibits	113

SIGNATURES			114

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 U.S. GAAP 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, 2010 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2010.

GLOSSARY OF DEFINED TERMS

A&D — Acquisition and development.

ABS — Asset-backed securities.

ALCO — Asset/Liability Management Committee.

ALLL — Allowance for loan and lease losses.

Alt-A — Alternative A-paper.

AOCI — Accumulated other comprehensive income.

AFS — Available for sale.

ARM — Adjustable rate mortgage.

ARS — Auction rate securities.

ASC —FASB Accounting Standard Codification.

ASU — Accounting Standards Update.

ATE — Additional termination event.

ATM — Automated teller machine.

Bank — SunTrust Bank.

Board — The SunTrust Banks, Inc. Board of Directors.

CDO — Collateralized debt obligations.

CD — Certificate of deposit.

CDS — Credit default swaps.

CIB — Corporate and Investment Banking.

Class B shares —Visa Inc. Class B common stock.

CLO — Collateralized loan obligation.

CLTV — Combined loan to value.

Coke —The Coca-Cola Company.

Company — SunTrust Banks, Inc. and subsidiaries.

CP — Commercial paper.

CPP — Capital Purchase Program.

CSA — Credit support annex.

Cusip — Committee on Uniform Security Identification Procedures.

DBRS — Dun and Bradstreet, Inc.

Dodd-Frank Reform Act — The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

EESA — The Emergency Economic Stabilization Act of 2008.

EPS — Earnings per share.

FASB — Financial Accounting Standards Board.

FDA — Federal Deposit Insurance Act.

FDIC — The Federal Deposit Insurance Corporation.

Federal Reserve — The Board of Governors of the Federal Reserve System.

Fed funds — Federal funds.

FFELP — Federal Family Education Loan Program.

FFIEC — Federal Financial Institutions Examination Council.

FHA — Federal Housing Administration.

FHFA — Federal Housing Finance Agency.

FHLB — Federal Home Loan Bank.

FICO — Fair Isaac Corporation.

FINRA — Financial Industry Regulatory Authority.

Fitch — Fitch Ratings Ltd.

FRM – Fixed rate mortgage.

FTE — Fully taxable-equivalent.

FVO — Fair value option.

GenSpring — GenSpring Family Offices LLC.

GB&T — GB&T Bancshares, Inc.

GSE — Government-sponsored enterprise.

HUD — Department of Housing and Urban Development.

IIS — Institutional Investment Solutions.

Inlign — Inlign Wealth Management, LLC.

IPO — Initial public offering.

IRA — Individual retirement arrangement.

IRLC — Interest rate lock commitment.

IRS — Internal Revenue Service.

ISDA — International Swaps and Derivatives Association, Inc.

LHFI-FV — Loans held for investment carried at fair value.

LHFS — Loans held for sale.

LIBOR —London InterBank Offered Rate.

LOCOM – Lower of cost or market.

LTI— Long-term incentive.

LTSC – Long-term standby commitment

LTV — Loan to value.

MBS — Mortgage-backed securities.

MD&A — Management’s Discussion and Analysis of Financial Condition and Results of Operations.

MMMF — Money market mutual fund.

Moody’s — Moody’s Investors Service.

MSR — Mortgage servicing right.

MVE — Market value of equity.

NOW — Negotiable order of withdrawal account.

NPL — Nonperforming loan.

NSF — Non-sufficient funds.

OCI — Other comprehensive income.

OREO — Other real estate owned.

OTC — Over-the-counter.

OTTI — Other-than-temporary impairment.

Parent Company — SunTrust Banks, Inc.

PWM — Private Wealth Management.

QSPE — Qualifying special purpose entity.

RidgeWorth — RidgeWorth Capital Management, Inc.

RMBS — Residential mortgage-backed securities.

S&P — Standard and Poor’s.

SBA — Small Business Administration.

SCAP — Supervisory Capital Assessment Program.

SEC —U.S. Securities and Exchange Commission.

Seix — Seix Investment Advisors, Inc.

SEO — Senior executive officers.

SIV — Structured investment vehicle.

SPE — Special purpose entity.

STIIA — SunTrust Institutional Investment Advisors LLC.

STIS — SunTrust Investment Services, Inc.

STM — SunTrust Mortgage, Inc.

STRH — SunTrust Robinson Humphrey, Inc.

SunTrust — SunTrust Banks, Inc. and subsidiaries.

SunTrust Community Capital — SunTrust Community Capital, LLC.

TARP — Troubled Asset Relief Program.

TDR — Troubled debt restructuring.

The Agreements — Equity forward agreements.

Three Pillars —Three Pillars Funding, LLC.

TRS — Total return swaps.

Twin Rivers — Twin Rivers Insurance Company.

U.S. — United States.

U.S. GAAP — Generally Accepted Accounting Principles in the United States.

U.S. Treasury — The United States Department of the Treasury.

UTBs — Unrecognized tax benefits.

VA —Veterans’ Administration.

VAR —Value at risk.

VI — Variable interest.

VIE — Variable interest entity.

Visa — The Visa, U.S.A. Inc. card association or its affiliates, collectively.

VRDO — Variable rate demand obligation.

iii

Item 1. FINANCIAL STATEMENTS (UNAUDITED)

SunTrust Banks, Inc.

Consolidated Statements of Income/(Loss)


	For the Three Months Ended June 30		For the Six Months Ended June 30
(Dollars and shares in thousands, except per share data) (Unaudited)	2010	2009	2010	2009
Interest Income
Interest and fees on loans	$1,317,707	$1,397,045	$2,634,463	$2,809,930
Interest and fees on loans held for sale	33,146	72,406	66,323	134,238
Interest and dividends on securities available for sale
Taxable interest	167,463	168,659	343,365	349,861
Tax-exempt interest	8,506	10,018	17,434	20,717
Dividends¹	18,970	18,066	37,929	36,228
Interest on funds sold and securities purchased under agreements to resell	280	558	525	1,495
Interest on deposits in other banks	11	63	29	176
Trading account interest	24,310	26,459	44,011	69,964

Total interest income	1,570,393	1,693,274	3,144,079	3,422,609

Interest Expense
Interest on deposits	225,199	398,903	458,244	822,776
Interest on funds purchased and securities sold under agreements to repurchase	1,520	2,441	2,612	5,174
Interest on trading liabilities	8,141	4,917	14,276	11,077
Interest on other short-term borrowings	3,021	3,593	6,215	8,748
Interest on long-term debt	154,382	193,763	313,165	423,079

Total interest expense	392,263	603,617	794,512	1,270,854

Net interest income	1,178,130	1,089,657	2,349,567	2,151,755
Provision for credit losses	662,064	962,181	1,523,673	1,956,279

Net interest income after provision for credit losses	516,066	127,476	825,894	195,476

Noninterest Income
Service charges on deposit accounts	207,765	210,224	403,667	416,618
Card fees	94,306	80,505	181,240	156,165
Other charges and fees	133,379	127,799	262,479	252,120
Trust and investment management income	127,222	117,007	249,309	233,017
Retail investment services	48,626	55,400	95,366	112,113
Mortgage production related income/(loss)	(16,462)	165,388	(47,391)	415,858
Mortgage servicing related income	87,544	139,658	158,048	223,010
Investment banking income	57,875	77,038	113,791	136,572
Trading account profits/(losses) and commissions	108,738	(30,020)	101,470	77,273
Gain from ownership in Visa	-	112,102	-	112,102
Other noninterest income	46,035	41,473	73,666	79,587
Net securities gains/(losses)²	56,971	(24,899)	58,514	(21,522)

Total noninterest income	951,999	1,071,675	1,650,159	2,192,913

Noninterest Expense
Employee compensation	575,420	569,228	1,131,918	1,142,250
Employee benefits	107,063	134,481	242,358	297,511
Outside processing and software	157,764	145,359	306,467	283,720
Net occupancy expense	89,927	87,220	181,068	174,637
Regulatory assessments	65,029	148,675	129,364	196,148
Credit and collection services	65,550	66,269	139,340	114,187
Other real estate expense	86,464	49,036	132,472	93,408
Equipment expense	42,366	43,792	82,879	87,332
Marketing and customer development	43,958	30,264	78,085	64,989
Operating losses	16,106	32,570	29,903	55,191
Amortization/impairment of goodwill/intangible assets	13,172	13,955	26,359	780,971
Mortgage reinsurance	8,780	24,581	18,180	94,620
Net loss on debt extinguishment	63,423	38,864	54,116	13,560
Visa litigation	-	7,000	-	7,000
Other noninterest expense	167,727	136,678	310,783	274,471

Total noninterest expense	1,502,749	1,527,972	2,863,292	3,679,995

Loss before benefit for income taxes	(34,684)	(328,821)	(387,239)	(1,291,606)
Benefit for income taxes	(49,764)	(148,957)	(243,926)	(299,734)

Net income/(loss) including income attributable to noncontrolling interest	15,080	(179,864)	(143,313)	(991,872)
Net income attributable to noncontrolling interest	2,696	3,596	5,117	6,755

Net income/(loss)	$12,384	($183,460)	($148,430)	($998,627)


Net loss available to common shareholders	($56,109)	($164,428)	($285,293)	($1,039,809)


Net income/(loss) per average common share
Diluted	($0.11)	($0.41)	($0.58)	($2.77)
Basic	(0.11)	(0.41)	(0.58)	(2.77)

Dividends declared per common share	0.01	0.10	0.02	0.20

Average common shares - diluted³	498,499	400,633	498,369	376,400
Average common shares - basic	495,351	399,242	495,112	375,429
¹Includes dividends on common stock of The Coca-Cola Company	$13,200	$12,300	$26,400	$24,600

²Net securities gains/(losses) for the three and six months ended June 30, 2010 include OTTI losses of $1 million and $2 million, respectively. During the three and six months ended June 30, 2010, there were no non-credit related unrealized OTTI losses recorded in other comprehensive income. Net securities gains/(losses) for the three and six months ended June 30, 2009 include OTTI losses of $6 million consisting of $9 million of total unrealized losses, net of $3 million of non-credit related unrealized OTTI losses recorded in other comprehensive income.

³For earnings per share calculation purposes, the impact of dilutive securities are excluded from the diluted share count during periods that the Company has recognized a net loss available to common shareholders because the impact would be anti-dilutive.

See Notes to Consolidated Financial Statements (unaudited).

SunTrust Banks, Inc.

Consolidated Balance Sheets


	As of
(Dollars in thousands) (Unaudited)	June 30 2010	December 31 2009
Assets
Cash and due from banks	$3,835,943	$6,456,406
Interest-bearing deposits in other banks	24,463	24,109
Funds sold and securities purchased under agreements to resell	932,769	516,656

Cash and cash equivalents	4,793,175	6,997,171
Trading assets	6,165,802	4,979,938
Securities available for sale	27,598,360	28,477,042
Loans held for sale¹(loans at fair value: $2,524,470 as of June 30, 2010; $2,923,375 as of December 31, 2009)	3,184,717	4,669,823
Loans ²(loans at fair value: $410,870 as of June 30, 2010; $448,720 as of December 31, 2009)	112,925,417	113,674,844
Allowance for loan and lease losses	(3,156,000)	(3,120,000)

Net loans	109,769,417	110,554,844
Premises and equipment	1,547,294	1,551,794
Goodwill	6,323,028	6,319,078
Other intangible assets (MSRs at fair value: $1,297,668 as of June 30, 2010; $935,561 as of December 31, 2009)	1,443,227	1,711,299
Customers’ acceptance liability	10,620	6,264
Other real estate owned	699,828	619,621
Unsettled sales of securities available for sale	534,512	-
Other assets	8,598,490	8,277,861

Total assets	$170,668,470	$174,164,735


Liabilities and Shareholders’ Equity
Noninterest-bearing consumer and commercial deposits	$25,382,113	$24,244,041
Interest-bearing consumer and commercial deposits	90,879,385	92,059,411

Total consumer and commercial deposits	116,261,498	116,303,452
Brokered deposits (CDs at fair value: $1,203,858 as of June 30, 2010; $1,260,505 as of December 31, 2009)	2,342,435	4,231,530
Foreign deposits	64,170	1,328,584

Total deposits	118,668,103	121,863,566
Funds purchased	1,260,447	1,432,581
Securities sold under agreements to repurchase	2,476,519	1,870,510
Other short-term borrowings	2,516,714	2,062,277
Long-term debt³(debt at fair value: $3,682,630 as of June 30, 2010; $3,585,892 as of December 31, 2009)	15,658,705	17,489,516
Acceptances outstanding	10,620	6,264
Trading liabilities	2,655,092	2,188,923
Other liabilities	4,398,376	4,720,243

Total liabilities	147,644,576	151,633,880


Preferred stock	4,929,357	4,917,312
Common stock, $1.00 par value	514,667	514,667
Additional paid in capital	8,445,077	8,521,042
Retained earnings	8,358,155	8,562,807
Treasury stock, at cost, and other	(968,279)	(1,055,136)
Accumulated other comprehensive income, net of tax	1,744,917	1,070,163

Total shareholders’ equity	23,023,894	22,530,855

Total liabilities and shareholders’ equity	$170,668,470	$174,164,735


Common shares outstanding	499,928,565	499,156,858
Common shares authorized	750,000,000	750,000,000
Preferred shares outstanding	50,225	50,225
Preferred shares authorized	50,000,000	50,000,000
Treasury shares of common stock	14,738,030	15,509,737

¹Includes loans held for sale of consolidated VIEs	$301,012	-

²Includes loans of consolidated VIEs	1,689,873	-

³Includes debt of consolidated VIEs	280,162	-

See Notes to Consolidated Financial Statements (unaudited).

SunTrust Banks, Inc.

Consolidated Statements of Shareholders’ Equity


(Dollars and shares in thousands, except per share data) (Unaudited)	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, 2009	$5,221,703	354,515	$372,799	$6,904,644	$10,388,984	($1,368,450)	$981,125	$22,500,805
Net loss	-	-	-	-	(998,627)	-	-	(998,627)
Other comprehensive income:
Change in unrealized gains (losses) on securities, net of taxes	-	-	-	-	-	-	51,967	51,967
Change in unrealized gains (losses) on derivatives, net of taxes	-	-	-	-	-	-	(337,565)	(337,565)
Change related to employee benefit plans	-	-	-	-	-	-	136,174	136,174

Total comprehensive loss								(1,148,051)
Change in noncontrolling interest	-	-	-	-	-	1,839	-	1,839
Common stock dividends, $0.20 per share	-	-	-	-	(72,646)	-	-	(72,646)
Series A preferred stock dividends, $2,022 per share	-	-	-	-	(10,635)	-	-	(10,635)
U.S. Treasury preferred stock dividends, $2,504 per share	-	-	-	-	(121,438)	-	-	(121,438)
Accretion of discount associated with U.S. Treasury preferred stock	11,387	-	-	-	(11,387)	-	-	-
Issuance of common stock in connection with SCAP capital plan	-	141,868	141,868	1,687,299	-	-	-	1,829,167
Extinguishment of forward stock purchase contract	-	-	-	164,927	-	-	-	164,927
Repurchase of preferred stock	(314,227)	-	-	4,843	89,425	-	-	(219,959)
Exercise of stock options and stock compensation expense	-	-	-	8,631	-	-	-	8,631
Restricted stock activity	-	1,676	-	(186,168)	-	157,693	-	(28,475)
Amortization of restricted stock compensation	-	-	-	-	-	36,277	-	36,277
Issuance of stock for employee benefit plans and other	-	727	-	(44,140)	(3)	56,859	-	12,716
Adoption of OTTI guidance	-	-	-	-	7,715	-	(7,715)	-

Balance, June 30, 2009	$4,918,863	498,786	$514,667	$8,540,036	$9,271,388	($1,115,782)	$823,986	$22,953,158

Balance, January 1, 2010	$4,917,312	499,157	$514,667	$8,521,042	$8,562,807	($1,055,136)	$1,070,163	$22,530,855
Net loss	-	-	-	-	(148,430)	-	-	(148,430)
Other comprehensive income:
Change in unrealized gains (losses) on securities, net of taxes	-	-	-	-	-	-	214,340	214,340
Change in unrealized gains (losses) on derivatives, net of taxes	-	-	-	-	-	-	377,261	377,261
Change related to employee benefit plans	-	-	-	-	-	-	83,153	83,153

Total comprehensive income								526,324
Change in noncontrolling interest	-	-	-	-	-	(2)	-	(2)
Common stock dividends, $0.02 per share	-	-	-	-	(9,988)	-	-	(9,988)
Series A preferred stock dividends, $2,022 per share	-	-	-	-	(3,488)	-	-	(3,488)
U.S. Treasury preferred stock dividends, $2,500 per share	-	-	-	-	(121,250)	-	-	(121,250)
Accretion of discount associated with U.S. Treasury preferred stock	12,045	-	-	-	(12,045)	-	-	-
Stock compensation expense	-	-	-	11,298	-	-	-	11,298
Restricted stock activity	-	461	-	(69,531)	-	41,318	-	(28,213)
Amortization of restricted stock compensation	-	-	-	-	-	22,221	-	22,221
Issuance of stock for employee benefit plans and other	-	311	-	(17,732)	1,976	23,320	-	7,564
Fair value election of MSRs	-	-	-	-	88,995	-	-	88,995
Adoption of VIE consolidation guidance	-	-	-	-	(422)	-	-	(422)

Balance, June 30, 2010	$4,929,357	499,929	$514,667	$8,445,077	$8,358,155	($968,279)	$1,744,917	$23,023,894

Balance at June 30, 2010 includes ($1,021,588) for treasury stock, ($54,885) for compensation element of restricted stock, and $108,194 for noncontrolling interest. Balance at June 30, 2009 includes ($1,141,909) for treasury stock, ($88,408) for compensation element of restricted stock, and $114,535 for noncontrolling interest.

See Notes to Consolidated Financial Statements (unaudited).

SunTrust Banks, Inc.

Consolidated Statements of Cash Flows


	Six Months Ended June 30
(Dollars in thousands) (Unaudited)	2010	2009
Cash Flows from Operating Activities:
Net loss including income attributable to noncontrolling interest	($143,313)	($991,872)
Adjustments to reconcile net loss to net cash provided by/(used in) operating activities:
Gain from ownership in Visa	-	(112,102)
Depreciation, amortization and accretion	404,254	476,416
Goodwill impairment	-	751,156
MSRs impairment recovery	-	(188,207)
Origination of MSRs	(133,789)	(379,725)
Provisions for credit losses and foreclosed property	1,620,306	2,030,966
Amortization of restricted stock compensation	22,221	36,277
Stock option compensation	11,298	8,631
Excess tax benefits from stock-based compensation	33	(352)
Net loss on extinguishment of debt	54,116	13,560
Net securities (gains)/losses	(58,514)	21,522
Net (gain)/loss on sale of assets	4,158	(29,351)
Net decrease/(increase) in loans held for sale	822,860	(4,305,295)
Contributions to retirement plans	(3,912)	(18,664)
Net increase in other assets	(407,387)	(6,329)
Net increase/(decrease) in other liabilities	173,441	(962,058)

Net cash provided by/(used in) operating activities	2,365,772	(3,655,427)


Cash Flows from Investing Activities:
Proceeds from maturities, calls and paydowns of securities available for sale	2,801,861	1,765,339
Proceeds from sales of securities available for sale	10,525,781	9,157,424
Purchases of securities available for sale	(12,677,081)	(13,127,424)
Proceeds from maturities, calls and paydowns of trading securities	78,370	60,710
Proceeds from sales of trading securities	60,534	2,042,528
Purchases of trading securities	-	(85,965)
Net decrease in loans	30,914	2,077,223
Proceeds from sales of loans held for investment	600,014	499,576
Capital expenditures	(88,614)	(108,820)
Proceeds from sale/redemption of Visa shares	-	112,102
Contingent consideration and other payments related to acquisitions	(4,233)	(17,038)
Proceeds from the sale of other assets	349,001	257,414

Net cash provided by investing activities	1,676,547	2,633,069


Cash Flows from Financing Activities:
Net (decrease)/increase in total deposits	(3,194,023)	5,028,585
Assumption of deposits, net	-	445,482
Net decrease in funds purchased, securities sold under agreements to repurchase, and other short-term borrowings	(1,134,991)	(1,404,478)
Proceeds from the issuance of long-term debt	500,000	574,560
Repayment of long-term debt	(2,282,542)	(8,409,350)
Excess tax benefits from stock-based compensation	(33)	352
Proceeds from the issuance of common stock	-	1,829,167
Repurchase of preferred stock	-	(219,959)
Common and preferred dividends paid	(134,726)	(201,719)

Net cash used in financing activities	(6,246,315)	(2,357,360)

Net decrease in cash and cash equivalents	(2,203,996)	(3,379,718)
Cash and cash equivalents at beginning of period	6,997,171	6,637,402

Cash and cash equivalents at end of period	$4,793,175	$3,257,684


Supplemental Disclosures:
Loans transferred from loans held for sale to loans	$17,222	$297,319
Loans transferred from loans to loans held for sale	237,522	-
Loans transferred from loans to other real estate owned	621,929	383,314
Accretion on U.S. Treasury preferred stock	12,045	11,387
Extinguishment of forward stock purchase contract	-	164,927
Gain on repurchase of Series A preferred stock	-	89,425
Total assets of consolidated VIEs at January 1, 2010	2,049,392	-

See Notes to Consolidated Financial Statements (unaudited).

Notes to Consolidated Financial Statements (Unaudited)

Note 1 – Significant Accounting Policies

Basis of Presentation

The unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete consolidated financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair presentation of the results of operations in these financial statements, have been made.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could vary from these estimates. Certain reclassifications have been made to prior period amounts to conform to the current period presentation.

The Company evaluated subsequent events through the date its financial statements were issued.

These financial statements should be read in conjunction with the Annual Report on Form 10-K for the year ended December 31, 2009. Except for accounting policies that have been modified or 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, 2009.

Loans

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are considered held for investment. The Company’s loan balance is comprised of loans held in portfolio, including commercial loans, consumer loans, real estate loans and lines, credit card receivables, direct financing leases, leveraged leases, and nonaccrual and restructured loans. Interest income on all types of loans is accrued based upon the outstanding principal amounts, except those classified as nonaccrual loans. The Company typically classifies commercial and commercial real estate loans as nonaccrual when one of the following events occurs: (i) interest or principal has been in default 90 days or more, unless the loan is secured by collateral having realizable value sufficient to discharge the debt in full and the loan is in the legal process of collection; (ii) collection of recorded interest or principal is not anticipated; or (iii) income for the loan is recognized on a cash basis due to the deterioration in the financial condition of the debtor. Consumer and residential mortgage loans are typically placed on nonaccrual when payments have been in default for 90 and 120 days or more, respectively.

When a loan is placed on nonaccrual, unpaid interest is reversed against interest income. Interest income on nonaccrual loans, if recognized, is either recorded using the cash basis method of accounting or recognized at the end of the loan after the principal has been reduced to zero, depending on the type of loan. If and when borrowers demonstrate the ability to repay a loan in accordance with the contractual terms of a loan classified as nonaccrual, the loan may be returned to accrual status. See “Allowance for Loan and Lease Losses” section of this Note for further discussion of impaired loans.

TDRs are loans in which the borrower is experiencing financial difficulty and the Company has granted an economic concession to the borrower. To date, the Company’s TDRs have been predominantly first and second lien residential mortgages and home equity lines of credit. Prior to modifying a borrower’s loan terms, the Company performs a careful evaluation of the borrower’s financial condition and ability to service the modified loan terms. The types of concessions granted are generally interest rate reductions and/or term extensions. If a loan is accruing at the time of modification, the loan remains on accrual status and is subject to the Company’s charge-off and nonaccrual policies. See the “Allowance for Loans and Lease Losses” section within this Note for further information regarding these policies. If a loan is on nonaccrual before it is determined to be a TDR then the loan remains on nonaccrual. TDRs may be returned to accrual status if there has been at least a six month sustained period of repayment performance by the borrower. Consistent with regulatory guidance, upon sustained performance and classification as a TDR over the Company’s year end, the loan will be removed from TDR status as long as the modified terms were market based at the time of modification. Generally, once a single 1-4 family residential related loan becomes a TDR, it is probable that the loan will likely continue to be reported as a TDR until it ultimately pays off.

For loans accounted for at amortized cost, fees and incremental direct costs associated with the loan origination and pricing process, as well as premiums and discounts, are deferred and amortized as level yield adjustments over the respective loan terms. Premiums for purchased credit cards are amortized on a straight-line basis over one year. Fees received for providing loan commitments that result in loans are recognized over the term of the loan as an adjustment of the yield. If a loan is never funded, the commitment fee is recognized into noninterest income at the expiration of the commitment period. Origination

Notes to Consolidated Financial Statements (Unaudited) - Continued

fees and costs are recognized in noninterest income and expense at the time of origination, for newly originated loans that are accounted for at fair value.

Allowance for Loan and Lease Losses

The Company’s ALLL is the amount considered adequate to absorb probable losses within the portfolio based on management’s evaluation of the size and current risk characteristics of the loan portfolio. Such evaluation considers numerous factors, including, but not limited to net charge-off trends, internal risk ratings, changes in internal risk ratings, loss forecasts, collateral values, geographic location, borrower FICO scores, delinquency rates, nonperforming and restructured loans, origination channel, product mix, underwriting practices, industry conditions and economic trends.

Specific allowances for loan and lease losses are established for large commercial, corporate, and commercial real estate nonaccrual loans that are evaluated on an individual basis and certain consumer, commercial, corporate, and commercial real estate loans whose terms have been modified in a TDR. The specific allowance established for these loans and leases is based on a thorough analysis of the most probable source of repayment, including the present value of the loan’s expected future cash flows, the loan’s estimated market value, or the estimated fair value of the underlying collateral depending on the most likely source of repayment.

General allowances are established for loans and leases grouped into pools based on similar characteristics. In this process, general allowance factors are based on an analysis of historical charge-off experience, portfolio trends, regional and national economic conditions, and expected loss given default derived from the Company’s internal risk rating process. Other adjustments may be made to the ALLL after an assessment of internal and external influences on credit quality that are not fully reflected in the historical loss or other risk rating data.

The Company’s charge-off policy meets or is more stringent than regulatory minimums. Losses on unsecured consumer loans are recognized at 90 days past due compared to the regulatory loss criteria of 120 days past due. Secured consumer loans, including residential real estate, are typically charged-off between 120 and 180 days past due, depending on the collateral type, in compliance with the FFIEC guidelines. Loans that have been partially charged-off remain on nonperforming status, regardless of collateral value, until specific borrower performance criteria are met.

The Company uses numerous sources of information in order to make an appropriate evaluation of a property’s value. Estimated collateral valuations are based on appraisals, broker price opinions, recent sales of foreclosed properties, automated valuation models, other property specific information, and relevant market information, supplemented by the Company’s internal property valuation professionals. The value estimate is based on an orderly disposition and marketing period of the property. In limited instances, the Company adjusts appraisals for justifiable and well-supported reasons, such as an appraiser not being aware of certain property- specific factors or recent sales information. Appraisals generally represent the “as is” value of the property but may be adjusted based on the intended disposition strategy of the property.

For commercial real estate loans secured by property, an acceptable appraisal or other form of evaluation is obtained prior to the origination of the loan. Updated evaluations of the collateral’s value are obtained at least annually, or earlier if the credit quality of the loan deteriorates. In situations where an updated appraisal has not been received or a formal evaluation performed, the Company monitors factors that can positively or negatively impact property value, such as the age of the last valuation, the volatility of property values in specific markets, changes in the value of similar properties, and changes in the characteristics of individual properties. Changes in collateral value affect the ALLL through the risk rating or impaired loan evaluation process. Charge-offs are recognized when the amount of the loss is quantifiable and timing is known. The charge-off is measured based on the difference between the loan’s carrying value, including deferred fees, and the estimated fair value of the loan. When assessing property value for the purpose of determining a charge-off, a third-party appraisal or an independently derived internal evaluation is generally employed.

For mortgage loans secured by residential property where the Company is proceeding with a foreclosure action, a new valuation is obtained prior to the loan becoming 180 days past due and, if required, the loan is written down to fair value, net of estimated selling costs. In the event the Company decides not to proceed with a foreclosure action, the full balance of the loan is charged-off. If a loan remains in the foreclosure process for 12 months past the original charge-off, typically at 180 days past due, the Company obtains a new valuation and, if required, writes the loan down to the new valuation, less estimated selling costs. At foreclosure, a new valuation is obtained and the loan is transferred to OREO at the new valuation less estimated selling and holding costs; any loan balance in excess of the transfer value is charged-off. Estimated declines in value of the residential collateral between these formal evaluation events are captured in the ALLL based on changes in the house price index in the applicable metropolitan statistical area or other market information.

Notes to Consolidated Financial Statements (Unaudited) - Continued

In addition to the ALLL, the Company also estimates probable losses related to unfunded lending commitments, such as letters of credit and binding unfunded loan commitments. Unfunded lending commitments are analyzed and segregated by risk similar to funded loans based on the Company’s internal risk rating scale. These risk classifications, in combination with an analysis of historical loss experience, probability of commitment usage, and any other pertinent information, result in the estimation of the reserve for unfunded lending commitments. The reserve for unfunded lending commitments is reported on the Consolidated Balance Sheets in other liabilities and the provision associated with changes in the unfunded lending commitment reserve is reported in the Consolidated Statements of Income/(Loss) in noninterest expense through the third quarter of 2009. Beginning in the fourth quarter of 2009, the Company began recording changes in the unfunded lending commitment reserve in the provision for credit losses.

Accounting Policies Recently Adopted and Pending Accounting Pronouncements

In June 2009, the FASB issued ASU 2009-16, an update to ASC 860-10, “Transfers and Servicing,” and ASU 2009-17, an update to ASC 810-10, “Consolidation.” These updates were effective for the first interim reporting period of 2010. The update to ASC 860-10 amends the guidance to eliminate the concept of a QSPE and changes some of the requirements for derecognizing financial assets. The amendments to ASC 810-10: (a) eliminate the exemption for existing QSPEs from U.S. GAAP, (b) shift the determination of which enterprise should consolidate a VIE to a current control approach, such that an entity that has both the power to make decisions and right to receive benefits or absorb losses that could potentially be significant to the VIE will consolidate a VIE, and (c) change when it is necessary to reassess who should consolidate a VIE.

The Company analyzed the impacts of these amendments on all QSPEs and VIE structures with which it is involved. Based on this analysis, the Company consolidated its multi-seller conduit, Three Pillars, and a CLO entity. The Company consolidated these entities because certain subsidiaries of the Company have significant decision-making rights and own VIs that could potentially be significant to these VIEs. The primary balance sheet impacts from consolidating Three Pillars and the CLO on January 1, 2010, were increases in loans and leases, the related allowance for loan losses, LHFS, long-term debt, and other short-term borrowings. The consolidations of Three Pillars and the CLO had no impact on the Company’s earnings or cash flows that result from its involvement with these VIEs, but the Company’s Consolidated Statements of Income/(Loss) reflect a reduction in noninterest income and increases in net interest income and noninterest expense due to the consolidations. For additional information on the Company’s VIE structures, refer to Note 6, “Certain Transfers of Financial Assets, Mortgage Servicing Rights and Variable Interest Entities,” to the Consolidated Financial Statements.

The combined impact of consolidating Three Pillars and the CLO on January 1, 2010 was incremental total assets and total liabilities of $2.0 billion, respectively, and an immaterial impact on shareholders’ equity. No additional funding requirements with respect to these entities are expected to significantly impact the liquidity position of the Company. Upon adoption, the Company consolidated the assets and liabilities of Three Pillars at their unpaid principal amounts and subsequently accounted for these assets and liabilities on an accrual basis. The Company consolidated the assets and liabilities of the CLO based on their estimated fair values upon adoption, and made an irrevocable election to carry all of the financial assets and financial liabilities of the CLO at fair value. The impact on certain of the Company’s regulatory capital ratios as a result of consolidating Three Pillars and the CLO was not significant.

The Company was not the primary beneficiary of any other significant off-balance sheet entities with which it was involved at January 1, 2010; however, the accounting guidance requires an entity to reassess whether it is the primary beneficiary at least quarterly. The Company’s reassessment during the second quarter of 2010 indicated no additional primary beneficiary relationships.

In January 2010, the FASB issued ASU 2010-06, an update to ASC 820-10, “Fair Value Measurements.” This update adds a new requirement to disclose transfers in and out of level 1 and level 2, along with the reasons for the transfers, and requires a gross presentation of purchases and sales of level 3 activities. Additionally, the update clarifies that entities provide fair value measurement disclosures for each class of assets and liabilities and that entities provide enhanced disclosures around level 2 valuation techniques and inputs. The Company adopted the disclosure requirements for level 1 and level 2 transfers and the expanded fair value measurement and valuation disclosures effective January 1, 2010. The disclosure requirements for level 3 activities will be effective for the Company on January 1, 2011. The adoption of the disclosure requirements for level 1 and level 2 transfers and the expanded qualitative disclosures, had no impact on the Company’s financial position, results of operations, and EPS. The Company does not expect the adoption of the level 3 disclosure requirements to have an impact on its financial position, results of operations, and EPS.

In February 2010, the FASB issued ASU 2010-09, an update to ASC 855-10, “Subsequent Events.” This update amends the guidance to remove the requirement for SEC filers to disclose the date through which subsequent events have been evaluated. SEC filers must continue to evaluate subsequent events through the date the financial statements are issued. The amendment was effective and has been adopted by the Company upon issuance.

Notes to Consolidated Financial Statements (Unaudited) - Continued

In February 2010, the FASB issued ASU 2010-10, an update to ASC 810-10, “Consolidation.” This update defers the amendments to the consolidation requirements of ASC 810-10 for a reporting entity’s interest in entities that have the attributes of investment companies or for which it is acceptable based on industry practice to apply measurement principles that are consistent with those followed by investment companies. The deferral also applies to a reporting entity’s interest in an entity that is required to comply with or operate in accordance with requirements that are similar to those included in Rule 2a-7 of the Investment Company Act of 1940 for registered MMMFs. Certain of the Company’s wholly-owned subsidiaries provide investment advisor services for various private placement and publicly registered investment funds. The deferral applies to all of these funds.

In March 2010, the FASB issued ASU 2010-11, an update to ASC 815-15, “Derivatives and Hedging–Embedded Derivatives.” This update clarifies that the scope exception for considering certain credit-related features for potential bifurcation and separate accounting in ASC 815-15 applies to contracts containing an embedded credit derivative that is only in the form of subordination of one financial instrument to another. Other contracts containing embedded credit derivatives do not qualify for the scope exception. The adoption of this standard, effective July 1, 2010, did not have an impact on the Company’s financial position, results of operations and EPS.

In April 2010, the FASB issued ASU 2010-18, an update to ASC 310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality.” This update clarifies that modifications of loans that are accounted for within a pool do not result in the removal of those loans from the pool even if the modification of those loans would otherwise be considered a TDR. Loans accounted for individually under ASC Subtopic 310-30 continue to be subject to the TDR accounting provisions within ASC 310-40, “Receivables—Troubled Debt Restructurings by Creditors.” This update was effective for the Company on July 1, 2010 and did not have an impact on the Company’s financial position, results of operations, and EPS.

In July 2010, the FASB issued ASU 2010-20, “Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.” The update requires companies to provide more disclosures about the credit quality of their financing receivables, which include loans, lease receivables, and other long-term receivables, and the credit reserves held against them. The disclosure requirements as of the end of a reporting period will be effective as of December 31, 2010. Disclosures about activity that occurs during a reporting period will be effective in the interim reporting period ending March 31, 2011. The Company is in the process of evaluating the new disclosure requirements.

Note 2 – Trading Assets and Liabilities

The fair values of the components of trading assets and liabilities at June 30, 2010 and December 31, 2009 were as follows:


(Dollars in thousands)	June 30 2010	December 31 2009
Trading Assets
U.S. Treasury securities	$360,217	$498,781
Federal agency securities	482,014	474,188
U.S. states and political subdivisions	52,004	58,520
RMBS - agency	230,455	94,164
RMBS - private	3,510	6,463
CDO securities	116,844	174,942
ABS	48,605	50,775
Corporate and other debt securities	641,501	465,637
Commercial paper	59,904	639
Equity securities	217,918	256,096
Derivative contracts	3,039,885	2,610,288
Trading loans	912,945	289,445

Total trading assets	$6,165,802	$4,979,938


Trading Liabilities
U.S. Treasury securities	$439,137	$189,461
Federal agency securities	17,169	3,432
Corporate and other debt securities	385,463	144,142
Equity securities	148	7,841
Derivative contracts	1,813,175	1,844,047

Total trading liabilities	$2,655,092	$2,188,923

Notes to Consolidated Financial Statements (Unaudited) - Continued

Note 3 – Securities Available for Sale

Securities AFS at June 30, 2010 and December 31, 2009 were as follows:


	June 30, 2010
(Dollars in thousands)	Amortized Cost	Unrealized Gains	Unrealized Losses	Fair Value
U.S. Treasury securities	$5,218,329	$133,844	$19	$5,352,154
Federal agency securities	923,218	31,159	1	954,376
U.S. states and political subdivisions	836,880	29,812	7,508	859,184
RMBS - agency	15,666,731	532,092	-	16,198,823
RMBS - private	424,987	2,415	62,041	365,361
ABS	918,700	12,856	8,667	922,889
Corporate bonds and other debt securities	485,742	19,710	1,261	504,191
Coke common stock	69	1,503,531	-	1,503,600
Other equity securities¹	936,823	959	-	937,782

Total securities available for sale	$25,411,479	$2,266,378	$79,497	$27,598,360


	December 31, 2009
(Dollars in thousands)	Amortized Cost	Unrealized Gains	Unrealized Losses	Fair Value
U.S. Treasury securities	$5,206,383	$719	$30,576	$5,176,526
Federal agency securities	2,733,534	12,704	8,653	2,737,585
U.S. states and political subdivisions	927,887	27,799	10,629	945,057
RMBS - agency	15,704,594	273,207	61,724	15,916,077
RMBS - private	471,583	1,707	95,207	378,083
ABS	309,611	10,559	5,423	314,747
Corporate bonds and other debt securities	505,185	9,989	3,373	511,801
Coke common stock	69	1,709,931	-	1,710,000
Other equity securities¹	786,248	918	-	787,166

Total securities available for sale	$26,645,094	$2,047,533	$215,585	$28,477,042

¹At June 30, 2010, other equity securities included $343 million in FHLB of Cincinnati and FHLB of Atlanta stock (par value), $361 million in Federal Reserve Bank stock (par value), and $232 million in mutual fund investments (fair value). At December 31, 2009, other equity securities included $343 million in FHLB of Cincinnati and FHLB of Atlanta stock (par value), $360 million in Federal Reserve Bank stock (par value), and $82 million in mutual fund investments (fair value).

See Note 14, “Contingencies,” to the Consolidated Financial Statements for information concerning ARS classified as securities AFS.

Securities AFS that were pledged to secure public deposits, repurchase agreements, trusts, and other funds had a fair value of $6.2 billion as of June 30, 2010. Further, under The Agreements, the Company has pledged its shares of Coke common stock, as discussed in Note 10, “Derivative Financial Instruments,” to the Consolidated Financial Statements. The Company has also pledged $949 million of certain trading assets and cash equivalents to secure $914 million of repurchase agreements as of June 30, 2010. Additionally, as of June 30, 2010, the Company had pledged $47.3 billion of net eligible loan collateral to support $28.7 billion in available borrowing capacity at either the Federal Reserve discount window or the FHLB of Atlanta. Of the available borrowing capacity, $8.1 billion was outstanding as of June 30, 2010.

Notes to Consolidated Financial Statements (Unaudited) - Continued

The amortized cost and fair value of investments in debt securities at June 30, 2010 by estimated average life are shown below. Actual cash flows may differ from estimated average lives and contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


(Dollars in thousands)	1 Year or Less	1-5 Years	5-10 Years	After 10 Years	Total
Distribution of Maturities:
Amortized Cost
U.S. Treasury securities	$676,181	$4,542,148	$-	$-	$5,218,329
Federal agency securities	197,988	585,742	121,625	17,863	923,218
U.S. states and political subdivisions	198,143	422,226	115,128	101,383	836,880
RMBS - agency	234,427	11,093,770	653,038	3,685,496	15,666,731
RMBS - private	25,829	172,282	226,876	-	424,987
ABS	353,403	561,043	4,254	-	918,700
Corporate bonds and other debt securities	8,635	308,627	142,746	25,734	485,742

Total debt securities	$1,694,606	$17,685,838	$1,263,667	$3,830,476	$24,474,587


Fair Value
U.S. Treasury securities	$676,689	$4,675,465	$-	$-	$5,352,154
Federal agency securities	199,002	605,903	131,098	18,373	954,376
U.S. states and political subdivisions	202,606	442,087	120,182	94,309	859,184
RMBS - agency	240,741	11,481,360	707,988	3,768,734	16,198,823
RMBS - private	22,854	144,589	197,918	-	365,361
ABS	357,988	562,540	2,361	-	922,889
Corporate bonds and other debt securities	8,811	315,863	155,044	24,473	504,191

Total debt securities	$1,708,691	$18,227,807	$1,314,591	$3,905,889	$25,156,978

Gross realized gains and losses on sales and OTTI on securities AFS during the periods were as follows:


	Three Months Ended		Six Months Ended
(Dollars in thousands)	June 30, 2010	June 30, 2009	June 30, 2010	June 30, 2009
Gross realized gains	$62,445	$11,974	$77,436	$16,163
Gross realized losses	(4,676)	(31,133)	(17,062)	(31,224)
OTTI	(798)	(5,740)	(1,860)	(6,461)

Net securities gains	$56,971	($24,899)	$58,514	($21,522)

Securities in a continuous unrealized loss position at June 30, 2010 and December 31, 2009 were as follows:

June 30, 2010

Less than twelve months

Twelve months or longer

Total

(Dollars in thousands)

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

Temporarily impaired securities

U.S. Treasury securities

$251,213

$19

$251,213

$19

Federal agency securities

1,429

U.S. states and political subdivisions

8,067

1,720

93,369

5,788

101,436

7,508

RMBS - private

37,622

1,180

19,292

3,490

56,914

4,670

ABS

198,005

787

13,630

5,772

211,635

6,559

Corporate bonds and other debt securities

24,473

1,261

24,473

1,261

Total temporarily impaired securities

496,336

3,707

150,764

16,311

647,100

20,018

Other-than-temporarily impaired securities

RMBS - private

298,743

57,371

298,743

57,371

ABS

5,659

2,108

5,659

2,108

Total other-than-temporarily impaired securities

5,659

2,108

298,743

57,371

304,402

59,479

Total impaired securities

$501,995

$5,815

$449,507

$73,682

$951,502

$79,497

Notes to Consolidated Financial Statements (Unaudited) - Continued


	December 31, 2009
	Less than twelve months		Twelve months or longer		Total
(Dollars in thousands)	Fair Value	Unrealized Losses	Fair Value	Unrealized Losses	Fair Value	Unrealized Losses
Temporarily impaired securities
U.S. Treasury securities	$5,083,249	$30,571	$263	$5	$5,083,512	$30,576
Federal agency securities	1,341,330	8,653	-	-	1,341,330	8,653
U.S. states and political subdivisions	125,524	5,711	64,516	4,918	190,040	10,629
RMBS- agency	5,418,226	61,724	-	-	5,418,226	61,724
RMBS - private	14,022	3,174	7,169	385	21,191	3,559
ABS	10,885	1,205	16,334	4,218	27,219	5,423
Corporate bonds and other debt securities	19,819	2	30,416	3,371	50,235	3,373

Total temporarily impaired securities	12,013,055	111,040	118,698	12,897	12,131,753	123,937

Other-than-temporarily impaired securities
RMBS - private	646	906	304,493	90,742	305,139	91,648

Total other-than-temporarily impaired securities	646	906	304,493	90,742	305,139	91,648

Total impaired securities	$12,013,701	$111,946	$423,191	$103,639	$12,436,892	$215,585

On June 30, 2010, the Company held certain investment securities having unrealized loss positions. The Company does not intend to sell these securities nor is it more likely than not that the Company will be required to sell these securities before their anticipated recovery or maturity. The Company has reviewed its portfolio for OTTI in accordance with the accounting policies outlined in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009. Market changes in interest rates and credit spreads will result in unrealized losses as the market price of securities fluctuates. The economic environment and illiquidity in the financial markets since 2008 have increased market yields on securities resulting in unrealized losses on certain securities within the Company’s portfolio.

The Company records OTTI through earnings based on the credit impairment estimates generally derived from cash flow analyses. The remaining unrealized loss, due to factors other than credit, is recorded in OCI. The unrealized OTTI loss relating to private RMBS as of June 30, 2010 includes purchased and retained interests from securitizations that have been other-than-temporarily impaired in prior periods. The unrealized OTTI loss relating to ABS is related to four securities within the portfolio that are home equity issuances and have also been other-than-temporarily impaired in prior periods. Based on the analysis of the underlying cash flows of these securities, there is no expectation of further credit impairment. In addition, the expectation of cash flows for the previously impaired ABS securities has improved such that the amount of expected credit losses was reduced and the expected increase in cash flows will be accreted into earnings as a yield adjustment over the remaining life of the securities.

The Company recorded OTTI losses on AFS securities as follows:


	Three Months Ended		Six Months Ended
(Dollars in thousands)	June 30, 2010	June 30, 2009	June 30, 2010	June 30, 2009
Total OTTI losses¹	$798	$8,567	$1,860	$9,288
Portion of losses recognized in OCI (before taxes)²	-	2,827	-	2,827

Net impairment losses recognized in earnings	$798	$5,740	$1,860	$6,461

¹OTTI losses for the three and six months ended June 30, 2010 all related to private RMBS. OTTI losses of $8,567 thousand for the three months ended June 30, 2009 were comprised of $8,355 thousand related to private RMBS and $212 thousand related to other securities. OTTI losses of $9,288 thousand for the six months ended June 30, 2009 were comprised of $9,076 thousand related to private RMBS and $212 thousand related to other securities.

²OTTI losses recognized in OCI of $2,827 thousand for the three and six months ended June 30, 2009 all related to private RMBS.

Notes to Consolidated Financial Statements (Unaudited) - Continued

The following is a rollforward of credit losses recognized in earnings for the six months ended June 30, 2010 and 2009 related to securities for which some portion of the impairment was recorded in OCI.


(Dollars in thousands)
Balance as of December 31, 2009		$21,602
Reductions:
Increases in expected cash flows recognized over the remaining life of the securities		(246)

Balance as of June 30, 2010¹		$21,356

¹During the six months ended June 30, 2010, the Company recognized $1,860 thousand of OTTI through earnings on debt securities in which no portion of the OTTI loss remained in AOCI at any time during the period. OTTI related to these securities are excluded from these amounts.


Balance as of April 1, 2009, effective date	$7,646
Additions:
OTTI credit losses on securities not previously impaired		4,805

Balance as of June 30, 2009²	$	12,451

²During the three months ended June 30, 2009, the Company recognized $935 thousand of OTTI through earnings on debt securities in which no portion of the OTTI loss remained in AOCI at any time during the period. OTTI related to these securities are excluded from these amounts.

While all securities are reviewed quarterly for OTTI, the securities that gave rise to the OTTI recognized during the six months ended June 30, 2010 consisted of private RMBS with a fair market value of $1 million at June 30, 2010. Credit impairment that is determined through the use of cash flow models is estimated using cash flows on security specific collateral and the transaction structure. Future expected credit losses are determined by using various assumptions, the most significant of which include current default rates, prepayment rates, and loss severities. For the majority of the securities that the Company has reviewed for OTTI, credit information is available and modeled at the loan level underlying each security and also considers information such as loan to collateral values, FICO scores, and geographic considerations such as home price appreciation/depreciation. These inputs are updated on a regular basis to ensure the most current credit and other assumptions are utilized in the analysis. If, based on this analysis, the Company does not expect to recover the entire amortized cost basis of the security, the expected cash flows are then discounted at the security’s initial effective interest rate to arrive at a present value amount. OTTI credit losses reflect the difference between the present value of cash flows expected to be collected and the amortized cost basis of these securities.

The following table presents a summary of the significant inputs used in determining the measurement of credit losses recognized in earnings for private RMBS as of June 30, 2010 and December 31, 2009.


	June 30, 2010	December 31, 2009
Current default rate	5 - 7%	2 - 17%
Prepayment rate	14 - 20%	6 - 21%
Loss severity	40 - 46%	35 - 52%

Notes to Consolidated Financial Statements (Unaudited) - Continued

Note 4 – Allowance for Credit Losses

Activity in the allowance for credit losses is summarized in the table below:


	Three Months Ended June 30		Six Months Ended June 30
(Dollars in thousands)	2010	2009	2010	2009
Balance at beginning of period	$3,276,601	$2,765,173	$3,234,900	$2,378,507
Provision for loan losses¹	702,764	962,181	1,579,349	1,956,279
Provision for unfunded commitments²	(40,700)	(1,573)	(55,000)	1,089
Loan charge-offs	(768,109)	(835,558)	(1,630,070)	(1,482,474)
Loan recoveries	45,345	34,377	86,722	71,199

Balance at end of period	$3,215,901	$2,924,600	$3,215,901	$2,924,600


Components:
ALLL	$3,156,000	$2,896,000
Unfunded commitments reserve³	59,901	28,600

Allowance for credit losses	$3,215,901	$2,924,600

¹ The amount for the six months ended June 30, 2010, includes $676 thousand related to the consolidation of a VIE.

²Beginning in the fourth quarter of 2009, the Company recorded the provision for unfunded commitments within the provision for credit losses in the Consolidated Statements of Income/(Loss). Considering the immateriality of this provision prior to the fourth quarter of 2009, the provision for unfunded commitments remains classified within other noninterest expense in the Consolidated Statements of Income/(Loss).

³ The unfunded commitments reserve is separately recorded in other liabilities in the Consolidated Balance Sheets.

Note 5 – Goodwill and Other Intangible Assets

Goodwill is required to be tested for impairment on an annual basis or as events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. In 2009 and the first quarter of 2010, the Company’s reporting units were comprised of Retail, Commercial, Commercial Real Estate, Household Lending, Corporate and Investment Banking, Wealth and Investment Management, and Affordable Housing. Effective in the second quarter of 2010, the Company reorganized its management and segment reporting structure. See Note 15, “Business Segment Reporting,” to the Consolidated Financial Statements for further discussion of the Company’s reorganization and change to segments. The change in segments impacted the goodwill reporting units as follows:

•

The Retail reporting unit was renamed Branch Banking; however, the composition of the reporting unit did not change.

•

Portions of the Corporate and Investment Banking reporting unit were transferred to the Commercial reporting unit, resulting in the allocation of approximately $43 million in goodwill from Corporate and Investment Banking to Commercial. As a result of the transfer, the Commercial reporting unit was renamed Diversified Commercial Banking.

As of June 30, 2010, the Company’s reporting units with goodwill balances were Branch Banking, Diversified Commercial Banking, Corporate and Investment Banking, and Wealth and Investment Management.

Since the annual testing of the Company’s goodwill as of September 30, 2009, no events have occurred nor have circumstances changed, including the reorganization in the second quarter of 2010, which caused re-testing of goodwill during the first six months of 2010.

Due to the continued recessionary environment and sustained deterioration in the economy during the first quarter of 2009, the Company performed a complete goodwill impairment analysis for all of its reporting units at that time. The estimated fair value of the Retail, Commercial, and Wealth and Investment Management reporting units exceeded their respective carrying values as of March 31, 2009; however, the fair value of the Household Lending, Corporate and Investment Banking, Commercial Real Estate (included in Retail and Commercial segment), and Affordable Housing (included in Retail and Commercial segment) reporting units were less than their respective carrying values. The implied fair value of goodwill of the Corporate and Investment Banking reporting unit exceeded the carrying value of the goodwill, thus no goodwill impairment was recorded for this reporting unit. However, the implied fair value of goodwill applicable to the Household Lending,

Notes to Consolidated Financial Statements (Unaudited) - Continued

Commercial Real Estate, and Affordable Housing reporting units was less than the carrying value of the goodwill. As of March 31, 2009, an impairment loss of $751 million was recorded, which was the entire amount of goodwill carried by each of those reporting units. $677 million of the goodwill impairment charge was non-deductible for tax purposes. The goodwill impairment charge was a direct result of the deterioration in the real estate markets and macro economic conditions that put downward pressure on the fair value of these businesses during the first quarter of 2009. The primary factor contributing to the impairment recognition was further deterioration in the actual and projected financial performance of these reporting units, as evidenced by the increase in net charge-offs and nonperforming loans. The decline in fair value of these reporting units was significantly influenced by the economic downturn, which resulted in depressed earnings in these businesses and the significant decline in the Company’s market capitalization during the first quarter of 2009.

The changes in the carrying amount of goodwill by reportable segment for the six months ended June 30 are as follows:


(Dollars in thousands)	Retail and Commercial	Wholesale	Corporate and Investment Banking	Household Lending	Mortgage	Wealth and Investment Management	Total
Balance, January 1, 2009	$5,911,990	$522,548	$-	$-	$278,254	$330,711	$7,043,503
Intersegment transfers	125,580	(522,548)	223,307	451,915	(278,254)	-	-
Goodwill impairment	(299,241)	-	-	(451,915)	-	-	(751,156)
Seix contingent consideration	-	-	-	-	-	12,722	12,722
Purchase of the assets of Epic Advisers, Inc.	-	-	-	-	-	5,012	5,012
Purchase price adjustments	474	-	-	-	-	3,827	4,301

Balance, June 30, 2009	$5,738,803	$-	$223,307	$-	$-	$352,272	$6,314,382


(Dollars in thousands)	Retail and Commercial	Retail Banking	Diversified Commercial Banking	Corporate and Investment Banking	Wealth and Investment Management	Total
Balance, January 1, 2010	$5,738,803	$-	$-	$223,307	$356,968	$6,319,078
Intersegment transfers	(5,738,803)	4,854,582	927,520	(43,299)	-	-
Inlign contingent consideration	-	-	-	-	3,465	3,465
Purchase price adjustments	-	-	-	-	485	485

Balance, June 30, 2010	$-	$4,854,582	$927,520	$180,008	$360,918	$6,323,028

Changes in the carrying amounts of other intangible assets for six months ended June 30 are as follows:


(Dollars in thousands)	Core Deposit Intangibles	MSRs Amortized Cost	MSRs Fair Value	Other	Total
Balance, January 1, 2009	$145,311	$810,474	$-	$79,642	$1,035,427
Designated at fair value (transfers from amortized cost)	-	(187,804)	187,804	-	-
Amortization	(22,166)	(130,494)	-	(7,777)	(160,437)
MSRs originated	-	-	379,725	-	379,725
MSRs impairment recovery	-	188,207	-	-	188,207
Changes in fair value
Due to changes in inputs or assumptions ¹	-	-	115,251	-	115,251
Other changes in fair value ²	-	-	(40,841)	-	(40,841)
Other	-	-	-	151	151

Balance, June 30, 2009	$123,145	$680,383	$641,939	$72,016	$1,517,483


Balance, January 1, 2010	$104,240	$603,821	$935,561	$67,677	$1,711,299
Designated at fair value (transfers from amortized cost)	-	(603,821)	603,821	-	-
Amortization	(19,536)	-	-	(6,822)	(26,358)
MSRs originated	-	-	133,789	-	133,789
Changes in fair value
Due to fair value election	-	-	144,634	-	144,634
Due to changes in inputs or assumptions ¹	-	-	(401,785)	-	(401,785)
Other changes in fair value ²	-	-	(118,352)	-	(118,352)

Balance, June 30, 2010	$84,704	$-	$1,297,668	$60,855	$1,443,227

¹Primarily reflects changes in discount rates and prepayment speed assumptions due to changes in interest rates.

²Represents changes due to the collection of expected cash flows, net of accretion, due to passage of time.

Notes to Consolidated Financial Statements (Unaudited) - Continued

Effective January 1, 2009, the Company elected to create a second class of MSRs that was reported at fair value and is being actively hedged as discussed in Note 10, “Derivative Financial Instruments,” to the Consolidated Financial Statements. The transfer of MSRs from LOCOM to fair value did not have a material effect on the Consolidated Financial Statements since the MSRs were effectively reported at fair value as of December 31, 2008 as a result of impairment losses recognized at the end of 2008. At December 31, 2009, MSRs associated with loans originated or sold prior to 2008 continued to be accounted for at LOCOM and managed through the Company’s overall asset/liability management process. Effective January 1, 2010, the Company elected to designate all remaining MSRs carried at LOCOM at fair value. Upon designating the remaining MSRs at fair value in January 2010, the Company recognized a cumulative effect increase to retained earnings, net of taxes, of $89 million.

Note 6 - Certain Transfers of Financial Assets, Mortgage Servicing Rights and Variable Interest Entities

Certain Transfers of Financial Assets and related Variable Interest Entities

The Company has transferred residential and commercial mortgage loans, student loans, commercial and corporate loans, and CDO securities in sale or securitization transactions in which the Company has, or had, continuing involvement. All such transfers have been accounted for as sales by the Company. The Company’s continuing involvement in such transfers includes owning certain beneficial interests, including senior and subordinate debt instruments as well as equity interests, servicing or collateral manager responsibilities, and guarantee or recourse arrangements. Except as specifically noted herein, the Company is not required to provide additional financial support to any of the entities to which the Company has transferred financial assets, nor has the Company provided any support it was not otherwise obligated to provide. Prior to January 1, 2010, interests that were held by the Company in transferred financial assets, excluding servicing and collateral management rights, were generally recorded as securities AFS or trading assets at their allocated carrying amounts based on their relative fair values at the time of transfer and were subsequently remeasured at fair value. In accordance with the new accounting guidance related to transfers of financial assets that became effective on January 1, 2010, upon completion of future transfers of assets that satisfy the conditions to be reported as a sale, the Company will derecognize the transferred assets and recognize at fair value any beneficial interests in the transferred financial assets such as trading assets or securities AFS, as well as servicing rights retained and guarantee liabilities incurred. See Note 13, “Fair Value Measurement and Election,” to the Consolidated Financial Statements for further discussion of the Company’s fair value methodologies.

When evaluating transfers and other transactions with VIEs for consolidation under the newly adopted VIE consolidation guidance, the Company first determines if it has a VI in the VIE. A VI is typically in the form of securities representing retained interests in the transferred assets and, at times, servicing rights and collateral manager fees. If the Company has a VI in the entity, it then evaluates whether or not it has both (1) the power to direct the activities that most significantly impact the economic performance of the VIE, and (2) the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. If the Company determines that it does not have power over the significant activities of the VIE, an analysis of the economics of the VIE is not necessary. If it is determined that the Company does have power over the significant activities of the VIE, the Company must determine if it also has an obligation to absorb losses and/or the right to receive benefits that could potentially be significant to the VIE.

Below is a summary of transfers of financial assets to VIEs for which the Company has retained some level of continuing involvement.

Residential Mortgage Loans

The Company typically transfers first lien residential mortgage loans in conjunction with Ginnie Mae, Fannie Mae, and Freddie Mac securitization transactions whereby the loans are exchanged for cash or securities that are readily redeemed for cash proceeds and servicing rights. The securities issued through these transactions are guaranteed by the issuer and, as such, under seller/servicer agreements the Company is required to service the loans in accordance with the issuers’ servicing guidelines and standards. The Company sold residential mortgage loans to these entities, which resulted in pre-tax gains of $137 million and $201 million for the three months ended June 30, 2010 and 2009, respectively, and $222 million and $428 million for the six months ended June 30, 2010 and 2009, respectively. These gains are included within mortgage production related income in the Consolidated Statements of Income/(Loss). These gains include the change in value of the loans as a result of changes in interest rates from the time the related IRLCs were issued to the borrowers but do not include the results of hedging activities initiated by the Company to mitigate this market risk. See Note 10, “Derivative Financial Instruments,” to the Consolidated Financial Statements for further discussion of the Company’s hedging activities. As seller, the Company has made certain representations and warranties with respect to the originally transferred loans, including those transferred under Ginnie Mae, Fannie Mae, and Freddie Mac programs, which are discussed in Note 11, “Reinsurance Arrangements and Guarantees,” to the Consolidated Financial Statements.

Notes to Consolidated Financial Statements (Unaudited) - Continued

In a limited number of securitizations, the Company has transferred loans to trusts, which previously qualified as QSPEs, sponsored by the Company. These trusts issue securities which are ultimately supported by the loans in the underlying trusts. In these transactions, the Company has received securities representing retained interests in the transferred loans in addition to cash and servicing rights in exchange for the transferred loans. The received securities are carried at fair value as either trading assets or securities AFS. As of June 30, 2010 and December 31, 2009, the fair value of securities received totaled $213 million and $217 million, respectively. At June 30, 2010, securities with a fair value of $192 million were valued using a third party pricing service. The remaining securities consist of subordinate interests from a 2003 securitization of prime fixed and floating rate loans and were valued using a discounted cash flow model that uses historically derived prepayment rates and credit loss assumptions along with estimates of current market discount rates. The Company did not significantly modify the assumptions used to value these retained interests at June 30, 2010 from the assumptions used to value the interests at December 31, 2009. For both periods, analyses of the impact on the fair values of two adverse changes from the key assumptions were performed and the resulting amounts were insignificant for each key assumption and in the aggregate.

The Company evaluated these securitization transactions for consolidation under the newly adopted VIE consolidation guidance. As servicer of the underlying loans, the Company is generally deemed to have power over the securitization. However, if a single party, such as the issuer or the master servicer, effectively controls the servicing activities or has the unilateral ability to terminate the Company as servicer without cause, then that party is deemed to have power. In almost all of its securitization transactions, the Company does not retain power over the securitization as a result of these rights held by the master servicer; therefore, an analysis of the economics of the securitization is not necessary. In certain transactions, the Company does have power as the servicer; however, the Company does not also have an obligation to absorb losses or the right to receive benefits that could potentially be significant to the securitization. The absorption of losses and the receipt of benefits would generally manifest itself through the retention of senior or subordinated interests. As of January 1, 2010, the Company determined that it was not the primary beneficiary of, and thus did not consolidate, any of these securitization transactions. No events occurred during the six months ended June 30, 2010 that would change the Company’s previous conclusion that it is not the primary beneficiary of any of these securitization transactions. Total assets as of June 30, 2010 and December 31, 2009 of the unconsolidated trusts in which the Company has a VI are $724 million and $780 million, respectively.

The Company’s maximum exposure to loss related to the unconsolidated VIEs in which it holds a VI is comprised of the loss of value of any interests it retains and any repurchase obligations it incurs as a result of a breach of its representations and warranties.

Separately, the Company has accrued $76 million and $36 million as of June 30, 2010 and December 31, 2009 for contingent losses related to certain of its representations and warranties made in connection with other previous transfers of nonconforming loans. The Company did not repurchase any of these previously transferred loans during the six months ended June 30, 2010 or 2009.

Commercial and Corporate Loans

In 2007, the Company completed a $1.9 billion structured sale of corporate loans to multi-seller CP conduits, which are VIEs administered by unrelated third parties, from which it retained a 3% residual interest in the pool of loans transferred, which does not constitute a VI in the third party conduits as it relates to the unparticipated portion of the loans. During the six months ended June 30, 2009, the Company wrote this residual interest and related accrued interest to zero, resulting in a loss of $17 million. This write off was the result of the deterioration in the performance of the loan pool to such an extent that the Company expects that it will no longer receive cash flows on the interest until the senior participation interest has been repaid in full. In conjunction with the transfer of the loans, the Company provided commitments in the form of liquidity facilities to these conduits; the sum of these commitments, which represents the Company’s maximum exposure to loss under the facilities, totaled $322 million at December 31, 2009. Due to deterioration in the loans that collateralize these facilities, the Company recorded a contingent loss reserve of $16 million on the facilities during the year ended December 31, 2009. In January 2010, the administrator of the conduits drew on these commitments in full, resulting in a funded loan to the conduits that is recorded on the Company’s Consolidated Balance Sheets. This event did not modify the Company’s sale accounting treatment or conclusion that it is not the primary beneficiary of these VIEs. In addition, no other events have occurred during the six months ended June 30, 2010 that would call into question either the Company’s sale accounting or the Company’s conclusions that it is not the primary beneficiary of these VIEs.

Notes to Consolidated Financial Statements (Unaudited) - Continued

The Company has involvement with CLO entities that own commercial leveraged loans and bonds, certain of which were transferred by the Company to the CLOs. In addition to retaining certain securities issued by the CLOs, the Company also acts as collateral manager for these CLOs. The securities retained by the Company and the fees received as collateral manager represent a VI in the CLOs, which are considered to be VIEs.

Beginning January 1, 2010, upon adoption of the new VIE consolidation guidance, the Company determined that it was the primary beneficiary of, and thus, would consolidate one of these CLOs as it has both the power to direct the activities that most significantly impact the entity’s economic performance and the obligation to absorb losses and the right to receive benefits from the entity that could potentially be significant to the CLO. In addition to fees received as collateral manager, including eligibility for performance incentive fees, and owning certain preference shares, the Company’s multi-seller conduit, Three Pillars, owns a senior interest in the CLO, resulting in economics that could potentially be significant to the VIE. Accordingly, on January 1, 2010, the Company consolidated $307 million in total assets and $279 million in net liabilities, after the elimination of this senior interest. The Company elected to consolidate the CLO at fair value and to carry the financial assets and financial liabilities of the CLO at fair value subsequent to adoption. The initial consolidation of the CLO had a negligible impact on the Company’s Consolidated Statements of Shareholders’ Equity. Substantially all of the assets and liabilities of the CLO are loans and issued debt, respectively. The loans are classified within loans held for sale at fair value and the debt is included with long-term debt at fair value on the Company’s Consolidated Balance Sheets (see Note 13, “Fair Value Measurement and Election,” to the Consolidated Financial Statements for a discussion of the Company’s methodologies for estimating the fair values of these financial instruments). The Company is not obligated, contractually or otherwise, to provide financial support to this VIE nor has it previously provided support to this VIE. Further, creditors of the VIE have no recourse to the general credit of the Company, as the liabilities of the CLO are paid only to the extent of available cash flows from the CLO’s assets.

For the remaining CLOs, which are also considered to be VIEs, the Company has determined that it is not the primary beneficiary as it does not have an obligation to absorb losses or the right to receive benefits from the entities that could potentially be significant to the VIE. During the six months ended June 30, 2009, the Company recognized losses of $7 million, which represented the complete write off of the preference shares in certain of the VIEs due to the continued deterioration in the performance of the collateral in those vehicles. At December 31, 2009, the carrying value of the Company’s investment in the preference shares was zero; however, during the first six months of 2010, the Company observed an improvement in cash flow expectations as well as an overall steady recovery in value in the broader CLO market. As a result, the Company marked up the value of the CLO preference shares by less than $10 million, which represented the market value of the Company’s investment in the preference shares at June 30, 2010. The Company receives fees for managing the assets of these vehicles; these fees are considered adequate compensation and are commensurate with the level of effort required to provide such services. The fees received by the Company from these entities are recorded as trust and investment management income in the Consolidated Statements of Income/(Loss) and totaled $3 million and $1 million for the three months ended June 30, 2010 and 2009, respectively, and $7 million and $4 million for the six months ended June 30, 2010 and 2009, respectively. Senior fees earned by the Company are generally not considered at risk; however, subordinate fees earned by the Company are subject to the availability of cash flows and to the priority of payments. The estimated assets and liabilities of these entities that were not included on the Company’s Consolidated Balance Sheets were $2.2 billion and $2.1 billion, respectively, at June 30, 2010 and $2.3 billion and $2.2 billion, respectively, at December 31, 2009. The Company is not obligated to provide any support to these entities, nor has it previously provided support to these entities. No events occurred during the six months ended June 30, 2010 that would change the Company’s previous conclusion that it is not the primary beneficiary of any of these securitization transactions.

Student Loans

In 2006, the Company completed a securitization of government guaranteed student loans through a transfer of loans to a securitization SPE, which previously qualified as a QSPE, and retained the corresponding residual interest in the SPE. The residual interest, classified within trading assets on the Company’s Consolidated Balance Sheet, and any losses the Company might incur as a result of that breach, represents the Company’s maximum exposure to loss as a result of its involvement with the VIE. The fair value of the residual interest at both June 30, 2010 and December 31, 2009 was less than $25 million. The key assumptions and inputs used by the Company in valuing this retained interest include prepayment speeds and the discount rate. The Company did not significantly modify the assumptions used to value the retained interest at June 30, 2010 from the assumptions used to value the retained interest at December 31, 2009. For both periods, analyses of the impact on the fair values of two adverse changes from the key assumptions were performed and the resulting amounts were insignificant for each key assumption and in the aggregate.

The total assets and liabilities of this VIE that were not included in the Company’s Consolidated Balance Sheets were $504 million and $497 million, respectively, at June 30, 2010 and $532 million and $522 million, respectively, at

Notes to Consolidated Financial Statements (Unaudited) - Continued

December 31, 2009. The Company is not obligated to provide any noncontractual support to this entity, nor has it previously provided support to this entity. All of the student loans that were securitized are U.S. government guaranteed student loans. As such, the Company has agreed to service each loan consistent with the guidelines determined by the applicable government agencies in order to maintain that guarantee. A breach of this responsibility could obligate the Company to repurchase the loan from the VIE at par. The Company believes that it does not have the power to direct activities that most significantly impact the economic performance of the VIE that holds these student loans, and it is therefore not the primary beneficiary of the VIE under the new VIE consolidation guidance. No events occurred during the six months ended June 30, 2010 that would change the Company’s previous conclusion that it is not the primary beneficiary of this VIE.

CDO Securities

The Company has transferred bank trust preferred securities in securitization transactions. The majority of these transfers occurred between 2002 and 2005, with one transaction completed in 2007. The Company retained equity interests in certain of these entities and also holds certain senior interests that were acquired during 2007 and 2008 in conjunction with its acquisition of assets from Three Pillars and the ARS transactions discussed in Note 14, “Contingencies,” to the Consolidated Financial Statements. During 2009, the Company sold its senior interest related to the acquisition of assets from Three Pillars; however, the Company continues to hold senior interests related to the ARS purchases. The assumptions and inputs considered by the Company in valuing this retained interest include prepayment speeds, credit losses, and the discount rate. The Company did not significantly modify the assumptions used to value the retained interest at June 30, 2010 from the assumptions used to value the interest at December 31, 2009. Due to the seniority of the interests in the structure, current estimates of credit losses in the underlying collateral could withstand a 20% adverse change without the securities incurring a loss. In addition, while all the underlying collateral is currently eligible for repayment by the obligor, given the nature of the collateral and the current repricing environment, the Company assumed no prepayment would occur before the final maturity, which is approximately 24 years on a weighted average basis. Therefore, the key assumption in valuing these securities was the assumed discount rate, which was estimated to be 14% over LIBOR. For both periods, analyses of the impact on the fair values of two adverse changes from the key assumption were performed. At both June 30, 2010 and December 31, 2009, a 20% adverse change in the assumed discount rate resulted in a decline of $5 million in the fair value of these securities.

The Company is not obligated to provide any support to these entities and its maximum exposure to loss at June 30, 2010 and December 31, 2009 was limited to (i) the current senior interests held in trading securities, which had a fair value of $25 million and $26 million, respectively and (ii) the remaining senior interests expected to be purchased in conjunction with the ARS issue, which had a total fair value of $2 million. The total assets of the trust preferred CDO entities in which the Company has remaining exposure to loss was $1.3 billion at both June 30, 2010 and December 31, 2009, respectively. The Company determined that it was not the primary beneficiary of any of these VIEs under the new VIE consolidation guidance, as the Company lacks the power to direct the significant activities of any of the VIEs. No events occurred during the six months ended June 30, 2010 that called into question either the Company’s sale accounting or the Company’s conclusions that it is not the primary beneficiary of these VIEs.

The following tables present certain information related to the Company’s asset transfers in which it has continuing economic involvement for the three and six months ended June 30:


	Three Months Ended June 30, 2010
(Dollars in thousands)	Residential Mortgage Loans	Commercial and Corporate Loans	Student Loans	CDO Securities	Total
Cash flows on interests held	$13,349	$861	$477	$465	$15,152
Servicing or management fees	1,024	3,556	184	-	4,764

	Three Months Ended June 30, 2009
(Dollars in thousands)	Residential Mortgage Loans	Commercial and Corporate Loans	Student Loans	CDO Securities	Total
Cash flows on interests held	$26,262	$308	$3,377	$1,204	$31,151
Servicing or management fees	1,266	1,865	153	-	3,284

Notes to Consolidated Financial Statements (Unaudited) - Continued


	Six Months Ended June 30, 2010
(Dollars in thousands)	Residential Mortgage Loans	Commercial and Corporate Loans	Student Loans	CDO Securities	Total
Cash flows on interests held	$27,695	$1,760	$3,401	$862	$33,718
Servicing or management fees	2,093	6,850	375	-	9,318



	Six Months Ended June 30, 2009
(Dollars in thousands)	Residential Mortgage Loans	Commercial and Corporate Loans	Student Loans	CDO Securities	Total
Cash flows on interests held	$52,389	$702	$3,715	$1,644	$58,450
Servicing or management fees	2,602	4,848	357	-	7,807

Portfolio balances and delinquency balances based on 90 days or more past due (including accruing and nonaccrual loans) as of June 30, 2010 and December 31, 2009, and net charge-offs related to managed portfolio loans (both those that are owned by the Company and those that have been transferred) for three and six months ended June 30, 2010 and 2009 are as follows:


	Principal Balance		Past Due		Net Charge-offs
					For the Three Months Ended		For the Six Months Ended
	June 30,	December 31,	June 30,	December 31,	June 30,		June 30,
(Dollars in millions)	2010	2009	2010	2009	2010	2009	2010	2009
Type of loan:
Commercial	$32,523	$32,494	$402	$508	$87	$150	$183	$281
Residential mortgage and home equity	46,569	46,743	3,279	4,065	430	512	1,004	851
Commercial real estate and construction	20,138	21,721	1,899	1,902	163	85	257	168
Consumer	12,664	11,649	481	428	21	32	50	72
Credit card	1,031	1,068	15	-	21	22	49	39

Total loan portfolio	112,925	113,675	6,076	6,903	722	801	1,543	1,411
Managed securitized loans
Commercial	2,961	3,460	64	64	22	13	22	20
Residential mortgage	1,368	1,482	124	123	11	15	22	24
Other	482	506	23	25	-	-	-	-

Total managed loans	$117,736	$119,123	$6,287	$7,115	$755	$829	$1,587	$1,455

Residential mortgage loans securitized through Ginnie Mae, Fannie Mae, and Freddie Mac have been excluded from the tables above since the Company does not retain any beneficial interests or other continuing involvement in the loans other than servicing responsibilities on behalf of Ginnie Mae, Fannie Mae, and Freddie Mac and repurchase contingencies under standard representations and warranties made with respect to the transferred mortgage loans. The total amount of loans serviced by the Company as a result of such securitization transactions totaled $128.7 billion and $127.8 billion at June 30, 2010 and December 31, 2009, respectively. Related servicing fees received by the Company were $94 million and $79 million for the three months ended June 30, 2010 and 2009, respectively, and $187 million and $155 million for the six months ended June 30, 2010 and 2009, respectively.

Mortgage Servicing Rights

In addition to other interests that continue to be held by the Company in the form of securities, the Company also retains MSRs from certain of its sales or securitizations of residential mortgage loans. MSRs on residential mortgage loans are the only servicing assets capitalized by the Company. Previously, the Company maintained two classes of MSRs: MSRs related to loans originated and sold after January 1, 2008, which were reported at fair value, and MSRs related to loans sold before January 1, 2008, which were reported at amortized cost, net of any allowance for impairment losses. Beginning January 1, 2010, the Company elected to account for all MSRs at fair value. See Note 5, “Goodwill and Other Intangible Assets,” to the Consolidated Financial Statements for the rollforward of MSRs. As of December 31, 2009, the Company had established an MSR valuation allowance of $7 million. No permanent impairment losses were recorded against the allowance for MSRs carried at amortized cost during the year ended December 31, 2009.

Income earned by the Company on its MSRs is derived primarily from contractually specified mortgage servicing fees and late fees, net of curtailment costs. Such income earned was $100 million and $82 million for the three months ended June 30, 2010 and 2009, respectively, and $198 million and $164 million for the six months ended June 30, 2010 and 2009, respectively. These amounts are reported in mortgage servicing related income in the Consolidated Statements of Income/(Loss).

Notes to Consolidated Financial Statements (Unaudited) - Continued

As of June 30, 2010 and December 31, 2009, the total unpaid principal balance of mortgage loans serviced was $177.8 billion and $178.9 billion, respectively. Included in these amounts were $145.8 billion and $146.7 billion as of June 30, 2010 and December 31, 2009, respectively, of loans serviced for third parties.

A summary of the key characteristics, inputs, and economic assumptions used to estimate the fair value of the Company’s MSRs as of June 30, 2010 and December 31, 2009, and the sensitivity of the fair values to immediate 10% and 20% adverse changes in those assumptions are as follows:


	June 30, 2010		December 31, 2009
(Dollars in millions)	Fair Value		Fair Value		LOCOM
Fair value of retained MSRs	$1,298		$936		$749

Prepayment rate assumption (annual)	22	%	10	%	17	%
Decline in fair value of 10% adverse change	$66		$30		$30
Decline in fair value of 20% adverse change	125		58		58
Discount rate (annual)	10	%	10	%	12	%
Decline in fair value of 10% adverse change	$40		$39		$27
Decline in fair value of 20% adverse change	77		75		51
Weighted-average life (in years)	4.1		7.5		4.8
Weighted-average coupon	5.6	%	5.2	%	6.1	%

The above sensitivities are hypothetical and should be used with caution. As the amounts indicate, changes in fair value based on variations in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in this table, the effect of a variation in a particular assumption on the fair value of the retained interest is calculated without changing any other assumption. In reality, changes in one factor may result in changes in another, which might magnify or counteract the sensitivities.

Other Variable Interest Entities

In addition to the Company’s involvement with certain VIEs, which is discussed herein under “Certain Transfers of Financial Assets and related Variable Interest Entities,” the Company also has involvement with VIEs from other business activities.

Three Pillars Funding, LLC

SunTrust assists in providing liquidity to select corporate clients by directing them to a multi-seller CP conduit, Three Pillars. Three Pillars provides financing for direct purchases of financial assets originated and serviced by SunTrust’s corporate clients by issuing CP.

The Company has determined that Three Pillars is a VIE as Three Pillars has not issued sufficient equity at risk. Previously, Three Pillars had issued a subordinated note to a third party, which would have absorbed the first dollar of loss in the event of nonpayment of any of Three Pillars’ assets. The outstanding and committed amounts of the subordinated note were $20 million at December 31, 2009 and no losses had been incurred through December 31, 2009. In January 2010, Three Pillars repaid and extinguished the subordinated note in full. In accordance with the provisions of the new VIE consolidation guidance, the Company has determined that it is the primary beneficiary of Three Pillars, as certain subsidiaries have both the power to direct the significant activities of Three Pillars and own potentially significant VIs, as discussed further herein. No losses on any of Three Pillars’ assets were incurred during the six months ended June 30, 2010.

The Company’s involvement with Three Pillars includes the following activities: services related to the administration of Three Pillars’ activities and client referrals to Three Pillars; the issuing of letters of credit, which provide partial credit protection to the CP holders; and providing liquidity arrangements that would provide funding to Three Pillars in the event it can no longer issue CP or in certain other circumstances. The Company’s activities with Three Pillars generated total revenue for the Company, net of direct salary and administrative costs, of $15 million and $16 million for the three months ended June 30, 2010 and 2009, respectively, and $30 million and $33 million for the six months ended June 30, 2010 and 2009, respectively.

At June 30, 2010, the Company’s Consolidated Balance Sheets reflected $1.7 billion of secured loans held by Three Pillars, which are included within commercial loans, and $180 million of CP issued by Three Pillars, excluding

Notes to Consolidated Financial Statements (Unaudited) - Continued

intercompany liabilities, which is included within other short-term borrowings; other assets and liabilities were de minimis to the Company’s Consolidated Balance Sheets. The assets and liabilities of Three Pillars were consolidated by the Company at their unpaid principal amounts at January 1, 2010; upon consolidation, the Company recorded an allowance for loan losses on $1.7 billion of secured loans that were consolidated at that time, resulting in a transition adjustment of less than $1 million, which is presented as “Adoption of VIE consolidation guidance” on the Company’s Consolidated Statements of Shareholders’ Equity.

Funding commitments extended by Three Pillars to its customers totaled $3.8 billion at June 30, 2010, almost all of which renew annually. At December 31, 2009, Three Pillars had $1.8 billion of assets not included on the Company’s Consolidated Balance Sheet and funding commitments and outstanding receivables totaled $3.7 billion and $1.7 billion, respectively. The majority of the commitments are backed by trade receivables and commercial loans that have been originated by companies operating across a number of industries. Trade receivables and commercial loans collateralize 53% and 17%, respectively, of the outstanding commitments, as of June 30, 2010, compared to 50% and 18%, respectively, as of December 31, 2009. Total assets supporting outstanding commitments have a weighted average life of 2.23 years and 1.69 years at June 30, 2010 and December 31, 2009, respectively.

Each transaction added to Three Pillars is typically structured to a minimum implied A/A2 rating according to established credit and underwriting policies as approved by credit risk management and monitored on a regular basis to ensure compliance with each transaction’s terms and conditions. Typically, transactions contain dynamic credit enhancement features that provide increased credit protection in the event asset performance deteriorates. If asset performance deteriorates beyond predetermined covenant levels, the transaction could become ineligible for continued funding by Three Pillars. This could result in the transaction being amended with the approval of credit risk management, or Three Pillars could terminate the transaction and enforce any rights or remedies available, including amortization of the transaction or liquidation of the collateral. In addition, Three Pillars has the option to fund under the liquidity facility provided by the Bank in connection with the transaction and may be required to fund under the liquidity facility if the transaction remains in breach. In addition, each commitment renewal requires credit risk management approval. The Company is not aware of unfavorable trends related to Three Pillars’ assets for which the Company expects to suffer material losses. For the six months ended June 30, 2010 and 2009, there were no write-downs of Three Pillars’ assets.

At June 30, 2010, Three Pillars’ outstanding CP used to fund its assets had remaining weighted average lives of 18 days and maturities through September 16, 2010. The assets of Three Pillars generally provide the sources of cash flows for the CP. However, the Company has issued commitments in the form of liquidity facilities and other credit enhancements to support the operations of Three Pillars. Due to the Company’s consolidation of Three Pillars as of January 1, 2010, these commitments would be eliminated in consolidation for U.S. GAAP purposes. The liquidity commitments are revolving facilities that are sized based on the current commitments provided by Three Pillars to its customers. The liquidity facilities may generally be used if new CP cannot be issued by Three Pillars to repay maturing CP. However, the liquidity facilities are available in all circumstances, except certain bankruptcy-related events with respect to Three Pillars. Draws on the facilities are subject to the purchase price (or borrowing base) formula that, in many cases, excludes defaulted assets to the extent that they exceed available over-collateralization in the form of non-defaulted assets, and may also provide the liquidity banks with loss protection equal to a portion of the loss protection provided for in the related securitization agreement. Additionally, there are transaction specific covenants and triggers that are tied to the performance of the assets of the relevant seller/servicer that may result in a transaction termination event, which, if continuing, would require funding through the related liquidity facility. Finally, in a termination event of Three Pillars, such as if its tangible net worth falls below $5,000 for a period in excess of 15 days, Three Pillars would be unable to issue CP, which would likely result in funding through the liquidity facilities. Draws under the credit enhancement are also available in all circumstances, but are generally used to the extent required to make payment on any maturing CP if there are insufficient funds from collections of receivables or the use of liquidity facilities. The required amount of credit enhancement at Three Pillars will vary from time to time as new receivable pools are purchased or removed from its asset portfolio, but is generally equal to 10% of the aggregate commitments of Three Pillars.

Due to the consolidation of Three Pillars, the Company’s maximum exposure to potential loss was $3.9 billion as of June 30, 2010, which represents the Company’s exposure to the lines of credit that Three Pillars had extended to its clients. Prior to consolidation, the Company had $3.8 billion and $371 million, respectively, of liquidity facilities and other credit enhancements outstanding as of December 31, 2009. The Company did not recognize any liability on its Consolidated Balance Sheets related to these liquidity facilities and other credit enhancements as of June 30, 2010 or December 31, 2009, as no amounts had been drawn, nor were any draws probable to occur, such that a loss should have been accrued. In addition, no losses were recognized by the Company in connection with these commitments during the six months ended June 30, 2010 or 2009.

Notes to Consolidated Financial Statements (Unaudited) - Continued

Total Return Swaps

The Company has had involvement with various VIEs related to its TRS business. The Company had unwound prior transactions during 2009, such that no such transactions were outstanding at December 31, 2009. However, during the six months ended June 30, 2010, the Company began to execute new TRS transactions.

Under the matched book TRS business model, the VIEs purchase assets (typically loans) from the market that serve as the underlying reference assets for a TRS between the VIE and the Company and a mirror TRS between the Company and its third party clients. The TRS between the VIEs and the Company hedge the Company’s exposure to the TRS with its third party clients. These third parties are not related parties to the Company, nor are they and the Company de facto agents of each other. In order for the VIEs to purchase the reference assets, the Company provides senior financing, in the form of demand notes, to these VIEs. The TRS contracts pass through interest and other cash flows on the assets owned by the VIEs to the third parties, along with exposing the third parties to depreciation on the assets and providing them with the rights to appreciation on the assets. The terms of the TRS contracts require the third parties to post initial collateral, in addition to ongoing margin as the fair values of the underlying assets change. There is no legal obligation between the Company and its third party clients for the Company to purchase the reference assets or for the Company to cause the VIEs to purchase the assets.

Prior to January 1, 2010, the Company had concluded it was not the primary beneficiary of the VIEs, as the VIEs were designed for the benefit of the third parties. Specifically, the third parties had implicit VIs in the VIEs via their TRS contracts with the Company, whereby these third parties absorbed the majority of the expected losses and were entitled to the majority of the expected residual returns of the VIEs. The Company has considered the new VIE consolidation guidance with respect to the new VIEs established subsequent to January 1, 2010. Specifically, the Company has evaluated the nature of all VIs and other interests and involvement with the VIEs, in addition to the purpose and design of the VIEs, relative to the risks they were designed to create. Based on this evaluation, the Company has determined that it is not the primary beneficiary of the VIEs, as the design of the TRS business results in the Company having limited power to direct the significant activities of the VIEs. The purpose and design of a VIE are key components of a consolidation analysis and any power should be analyzed based on the substance of that power relative to other facts and circumstances. As discussed herein, the VIEs would not exist if the Company did not enter into the TRS contracts with the third parties.

At June 30, 2010, the Company had $595 million in senior financing outstanding to VIEs, which was classified within trading assets on the Consolidated Balance Sheets and carried at fair value. These VIEs had entered into TRS contracts with the Company with outstanding notional amounts of $594 million at June 30, 2010 and the Company had entered into mirror TRS contracts with its third parties with the same outstanding notional amounts. At June 30, 2010, the fair values of these TRS derivative assets and derivative liabilities were $6 million and $4 million, respectively. The notional amounts of the TRS contracts with the VIEs represent the Company’s maximum exposure to loss, although such exposure to loss has been mitigated via the TRS contracts with the third parties. The Company has not provided any support that it was not contractually obligated to for the six months ended June 30, 2010. For additional information on the Company’s TRS with these VIEs, see Note 10, “Derivative Financial Instruments” to the Consolidated Financial Statements.

Community Development Investments

As part of its community reinvestment initiatives, the Company invests almost exclusively within its footprint in multi-family affordable housing developments and other community development entities as a limited and/or general partner and/or a debt provider. The Company receives tax credits for its partnership investments. The Company has determined that these partnerships are VIEs when it does not own 100% of the entity because the holders of the equity investment at risk do not have the power through voting rights or similar rights to direct the activities of the entity that most significantly impact the entity’s economic performance. Accordingly, the Company’s general partner, limited partner, and/or debt interests are VIs that the Company evaluates for purposes of determining whether the Company is the primary beneficiary. During 2010 and 2009, the Company did not provide any financial or other support to its consolidated or unconsolidated investments that it was not previously contractually required to provide.

For some partnerships, the Company operates strictly as a general partner and, as such, has both (1) the power to direct the activities of the VIE that most significantly impact the entity’s economic performance and (2) the obligation to absorb losses of and the right to receive benefits from the entity that could potentially be significant to the VIE. Accordingly, the Company consolidates these partnerships on its Consolidated Balance Sheets. As the general partner, the Company typically guarantees the tax credits due to the limited partner and is responsible for funding construction and operating deficits. As of June 30, 2010 and December 31, 2009, total assets, which consist primarily of fixed assets and cash attributable to the consolidated partnerships, were $11 million and $14 million, respectively, and total liabilities, excluding intercompany liabilities, were $1 million and $3 million, respectively. Security deposits from the tenants are

Notes to Consolidated Financial Statements (Unaudited) - Continued

recorded as liabilities on the Company’s Consolidated Balance Sheets. The Company maintains separate cash accounts to fund these liabilities and these assets are considered restricted. The tenant liabilities and corresponding restricted cash assets were de minimis as of June 30, 2010 and December 31, 2009. While the obligations of the general partner are generally non-recourse to the Company, as the general partner, the Company may from time to time step in when needed to fund deficits. During 2010 and 2009, the Company did not provide any significant amount of funding as the general partner or to cover any deficits the partnerships may have generated.

For other partnerships, the Company acts only in a limited partnership capacity. The Company has determined that it is not the primary beneficiary of these partnerships because it does not have the power to direct the activities of the entity that most significantly impact the entity’s economic performance. The Company accounts for its limited partner interests in accordance with the accounting guidance for investments in affordable housing projects. The general partner or an affiliate of the general partner provides guarantees to the limited partner which protect the Company from losses attributable to operating deficits, construction deficits and tax credit allocation deficits. Partnership assets of $1.1 billion in these partnerships were not included in the Consolidated Balance Sheets at June 30, 2010 and December 31, 2009. These limited partner interests had carrying values of $211 million and $218 million at June 30, 2010 and December 31, 2009, respectively, and are recorded in other assets on the Company’s Consolidated Balance Sheets. The Company’s maximum exposure to loss for these limited partner investments totaled $452 million and $468 million at June 30, 2010 and December 31, 2009, respectively. The Company’s maximum exposure to loss would be borne by the loss of the limited partnership equity investments along with $220 million and $219 million of loans issued by the Company to the limited partnerships at June 30, 2010 and December 31, 2009, respectively. The difference between the maximum exposure to loss and the investment and loan balances is primarily attributable to the unfunded equity commitments. Unfunded equity commitments are amounts that the Company has committed to the partnerships upon the partnerships meeting certain conditions. When these conditions are met, the Company will invest these additional amounts in the partnerships.

When the Company owns both the limited partner and general partner or acts as the indemnifying party, the Company consolidates the partnerships and does not consider these partnerships VIEs because, as owner of the partnerships, the Company has the ability to directly and indirectly make decisions that have a significant impact on the business. As of June 30, 2010 and December 31, 2009, total assets, which consist primarily of fixed assets and cash, attributable to the consolidated, non-VIE partnerships were $410 million and $425 million, respectively, and total liabilities, excluding intercompany liabilities, primarily representing third-party borrowings, were $108 million and $209 million, respectively. See Note 13, “Fair Value Measurement and Election,” to the Consolidated Financial Statements for further discussion on the impact of impairment charges on affordable housing partnership investments recorded during the six months ended June 30, 2010 and 2009.

Registered and Unregistered Funds Advised by RidgeWorth

RidgeWorth, a registered investment advisor and wholly-owned subsidiary of the Company, serves as the investment advisor for various private placement and publicly registered investment funds (collectively the “Funds”). The Company evaluates these Funds to determine if the Funds are voting interest entities or VIEs, as well as monitors the nature of its interests in each Fund to determine if the Company is required to consolidate any of the Funds. In February 2010, the FASB issued guidance that defers the application of the new VIE consolidation guidance for investment funds meeting certain criteria. All of the registered and unregistered Funds advised by RidgeWorth meet the scope exception criteria and thus are not evaluated for consolidation under the new guidance. Accordingly, the Company continues to apply the consolidation guidance in effect prior to the issuance of the new guidance to interests in funds that qualify for the deferral. Further, funds that were determined to be VIEs under the previous accounting guidance and are still considered VIEs under the new accounting guidance are required to comply with the new disclosure requirements.

The Company has concluded that some of the Funds are VIEs because the equity investors lack decision making rights. However, the Company has concluded that it is not the primary beneficiary of these funds as the Company does not absorb a majority of the expected losses nor expected returns of the funds. The Company’s exposure to loss is limited to the investment advisor and other administrative fees it earns and if applicable, any equity investments. Payment of fees is received from the individual investor accounts. The total unconsolidated assets of these funds as of June 30, 2010 and December 31, 2009 were $2.8 billion and $3.3 billion, respectively.

The Company does not have any contractual obligation to provide monetary support to any of the Funds and did not provide any support, contractual or otherwise, to the Funds during the six months ended June 30, 2010 and 2009.

Notes to Consolidated Financial Statements (Unaudited) - Continued

Note 7 – Loss Per Share

Net loss is the same in the calculation of basic and diluted loss per average common share. Equivalent shares of 32 million and 36 million related to common stock options and common stock warrants outstanding as of June 30, 2010 and 2009, respectively, were excluded from the computations of diluted loss per average common share 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, 2010 and 2009 is included below. Additionally, included below is a reconciliation of net loss to net loss available to common shareholders.


	Three Months Ended June 30		Six Months Ended June 30
(In thousands, except per share data)	2010	2009	2010	2009
Net income/(loss)	$12,384	($183,460)	($148,430)	($998,627)
Series A preferred dividends	(1,762)	(5,635)	(3,488)	(10,635)
U.S. Treasury preferred dividends and accretion of discount	(66,690)	(66,546)	(133,295)	(132,825)
Gain on repurchase of Series A preferred stock	-	89,425	-	89,425
Dividends and undistributed earnings allocated to unvested shares	(41)	1,788	(80)	12,853

Net loss available to common shareholders	($56,109)	($164,428)	($285,293)	($1,039,809)


Average basic common shares	495,351	399,242	495,112	375,429
Effect of dilutive securities:
Stock options	983	279	945	140
Restricted stock	2,165	1,112	2,312	831

Average diluted common shares	498,499	400,633	498,369	376,400


Loss per average common share - diluted	($0.11)	($0.41)	($0.58)	($2.77)

Loss per average common share - basic	($0.11)	($0.41)	($0.58)	($2.77)

Note 8 - Income Taxes

The provision for income taxes was a benefit of $50 million and $149 million for the three months ended June 30, 2010 and 2009, respectively, representing negative effective tax rates of 133.1% and 44.8% during those periods. The provision for income taxes was a benefit of $244 million and $300 million for the six months ended June 30, 2010 and 2009, respectively, representing negative effective tax rates of 62.2% and 23.1% during those periods. The Company calculated the benefit for income taxes for the three and six months ended June 30, 2010 and 2009 based on the discrete methodology using actual year-to-date results.

As of June 30, 2010, the Company’s gross cumulative UTBs amounted to $105 million, of which $72 million (net of federal tax benefit) would affect the Company’s effective tax rate, if recognized. As of December 31, 2009, the Company’s gross cumulative UTBs amounted to $161 million. The reduction in UTBs was primarily attributable to the settlement of an examination by a taxing authority and the related payments and reversal of the liability. Additionally, the Company recognized a gross liability of $33 million and $39 million for interest related to its UTBs as of June 30, 2010 and December 31, 2009, respectively. Interest related to UTBs was an expense of approximately $2 million and an income of approximately $3 million for the three and six months ended June 30, 2010, compared to an expense of approximately $4 million and approximately $11 million, for the same periods in 2009. The Company continually evaluates the UTBs associated with its uncertain tax positions. It is reasonably possible that the total UTBs could decrease during the next 12 months by up to $13 million due to completion of tax authority examinations and the expiration of statutes of limitations.

The Company files consolidated and separate income tax returns in the United States federal jurisdiction and in various state jurisdictions. As of June 30, 2010, the Company’s federal returns through 2006 have been examined by the IRS. All issues have been resolved for tax years through 2004. Only one issue remains in dispute for tax years 2005 and 2006. The Company’s 2007 through 2009 federal income tax returns are currently under examination by the IRS. 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 9 - Employee Benefit Plans

The Company sponsors various short and LTI plans for eligible employees. The Company delivers LTIs through various incentive programs, including stock options, restricted stock, LTI cash plan, and salary shares. Certain employees received long-term deferred cash awards which are subject to a three year vesting requirement. The accrued liability related to these deferred cash grants was $42 million and $28 million as of June 30, 2010 and December 31, 2009, respectively.

An important new compensation development that had the characteristics of both base salary and equity emerged as part of the U.S. Treasury’s Interim Final Rule on TARP Standards for Compensation and Corporate Governance. This compensation development became known as salary shares. Specifically, the Interim Rule prohibits the payment of short-term incentives (annual bonus) and stock options to the SEO and to the next 20 most highly compensated employees. Effective January 1, 2010, the Company chose to use the salary share concept because it is specifically authorized by EESA to address the constraints on the annual cash bonus and equity awards; and the Company believes it is necessary that it use this approach to remain competitive and to minimize the risk of talent flight to other companies with which it competes. Specifically, the Company will pay additional base salary amounts in the form of stock (salary shares) to the SEO and other employees who are among the next 20 most highly-compensated employees. The Company will do this each pay period in the form of stock units under the SunTrust Banks, Inc. 2009 Stock Plan. The stock units will not include any rights to receive dividends or dividend equivalents. As required by EESA, each salary share will be non-forfeitable upon grant but may not be sold or transferred until the expiration of a holding period (except as necessary to satisfy applicable withholding taxes). As a result, these individuals are at risk for the value of our stock price until the stock unit is settled. The stock units will be settled in cash; one half on March 31, 2011 and one half on March 31, 2012, unless settled earlier due to the executive’s death. The amount to be paid on settlement of the stock units will be equal to the value of a share of SunTrust common stock on the settlement date. Benefit plan determinations and limits were established to ensure that the salary shares were accounted for equitably within relevant benefit plans. As of June 30, 2010, the accrual related to salary shares was $4 million.

Stock-Based Compensation

The weighted average fair values of options granted during the first six months of 2010 and 2009 were $12.78 per share and $5.13 per share, respectively. 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
	2010		2009
Dividend yield	0.17	%	4.16	%
Expected stock price volatility	56.10		83.17
Risk-free interest rate (weighted average)	2.84		1.94
Expected life of options	6 years		6 years

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


	Stock Options			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, 2010	17,661,216	$9.06 -$150.45	$53.17	4,770,172	$59,161	$37.02
Granted	1,192,974	22.69 - 27.79	23.64	921,938	21,155	22.95
Exercised/vested	-	-	-	(1,078,154)	-	71.72
Cancelled/expired/forfeited	(552,046)	9.06 - 79.73	55.33	(106,302)	(3,210)	30.20
Amortization of restricted stock compensation	-	-	-	-	(22,221)	-

Balance, June 30, 2010	18,302,144	$9.06 -$150.45	$51.18	4,507,654	$54,885	$26.01



Exercisable, June 30, 2010	12,208,774		$65.85


Available for additional grant, June 30, 2010 ¹	7,307,473

¹Includes 3,568,383 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, 2010:

(Dollars in thousands except per share data)


	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number Outstanding at June 30, 2010	Weighted Average Exercise Price	Weighted Average Remaining Contractual Life (Years)	Total Aggregate Intrinsic Value	Number Exercisable at June 30, 2010	Weighted Average Exercise Price	Weighted Average Remaining Contractual Life (Years)	Total Aggregate Intrinsic Value

$9.06 to 49.46	5,591,128	$16.11	8.27	$52,530	477,958	$43.13	2.29	$461
$49.47 to 64.57	4,743,326	56.43	1.87	-	4,743,326	56.43	1.87	-
$64.58 to 150.45	7,967,690	72.66	4.45	-	6,987,490	73.80	4.00	-

	18,302,144	$51.18	4.95	$52,530	12,208,774	$65.85	3.11	$461

Stock-based compensation expense recognized in noninterest expense was as follows:


	Three Months Ended June 30		Six Months Ended June 30
(Dollars in thousands)	2010	2009	2010	2009
Stock-based compensation expense:
Stock options	$3,496	$3,565	$7,105	$6,478
Restricted stock	9,953	15,994	22,221	36,277

Total stock-based compensation expense	$13,449	$19,559	$29,326	$42,755

The recognized stock-based compensation tax benefit amounted to $5 million and $7 million for the three months ended June 30, 2010 and 2009, respectively. For the six months ended June 30, 2010 and 2009, the recognized stock-based compensation tax benefit was $11 million, and $16 million, respectively.

Retirement Plans

SunTrust did not contribute to either of its noncontributory qualified retirement plans (“Retirement Benefits” plans) in the first six months of 2010. The expected long-term rate of return on plan assets for the Retirement Benefit Plans is 8.00% for 2010.

Anticipated employer contributions/benefit payments for 2010 are $12 million for the Supplemental Retirement Benefit plans. For the three and six months ended June 30, 2010, the actual contributions/benefit payments totaled $1 million and $4 million, respectively.

SunTrust contributed less than $1 million to the Postretirement Welfare Plan in the second quarter of 2010. Additionally, SunTrust expects to receive a Medicare Part D Subsidy reimbursement for 2010 in the amount of $2 million. The expected pre-tax long-term rate of return on plan assets for the Postretirement Welfare plan is 6.75% for 2010.

Notes to Consolidated Financial Statements (Unaudited) - Continued


	Three Months Ended June 30
	2010		2009
(Dollars in thousands)	Pension Benefits	Other Postretirement Benefits	Pension Benefits	Other Postretirement Benefits
Service cost	$17,331	$-	$15,967	$73
Interest cost	32,007	2,436	29,898	2,803
Expected return on plan assets	(45,723)	(1,806)	(37,288)	(1,758)
Amortization of prior service cost	(2,792)	(95)	(2,721)	(390)
Recognized net actuarial loss	15,027	245	28,013	4,648

Net periodic benefit cost	$15,850	$780	$33,869	$5,376


	Six Months Ended June 30
	2010		2009
(Dollars in thousands)	Pension Benefits	Other Postretirement Benefits	Pension Benefits	Other Postretirement Benefits
Service cost	$34,662	$-	$34,825	$146
Interest cost	64,014	4,872	59,961	5,606
Expected return on plan assets	(91,446)	(3,612)	(74,846)	(3,516)
Amortization of prior service cost	(5,584)	(190)	(5,442)	(780)
Recognized net actuarial loss	30,054	490	60,469	9,296

Net periodic benefit cost	$31,700	$1,560	$74,967	$10,752

During March 2010, a comprehensive health care reform legislation was signed into law under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (the “Acts”). Included among the major provisions of the law is a change in tax treatment of the federal drug subsidy paid with respect to Medicare-eligible retirees. The Company has evaluated the cost of the healthcare reform legislation for which guidance has been issued and the impact is not expected to be material. The Company will continue to monitor and assess the effect of the Acts as further guidance is issued.

Notes to Consolidated Financial Statements (Unaudited)-Continued

Note 10 - Derivative Financial Instruments

The Company enters into various derivative financial instruments, both in a dealer capacity to facilitate client transactions and as an end user as a risk management tool. Where derivatives have been entered into with clients, the Company generally manages the risk associated with these derivatives within the framework of its VAR approach that monitors total exposure daily and seeks to manage the exposure on an overall basis. Derivatives are used as a risk management tool to hedge the Company’s exposure to changes in interest rates or other identified market or credit risks, either economically or in accordance with the hedge accounting provisions. The Company may also enter into derivatives, on a limited basis, in consideration of trading opportunities in the market. In addition, as a normal part of its operations, the Company enters into IRLCs on mortgage loans that are accounted for as freestanding derivatives and has certain contracts containing embedded derivatives that are carried, in their entirety, at fair value. All freestanding derivatives and any embedded derivatives that the Company bifurcates from the host contracts are carried at fair value in the Consolidated Balance Sheets in trading assets, other assets, trading liabilities, or other liabilities. The associated gains and losses are either recorded in OCI, net of tax, or within the Consolidated Statements of Income/(Loss) depending upon the use and designation of the derivatives.

Credit and Market Risk Associated with Derivatives

Derivatives expose the Company to credit risk. If the counterparty fails to perform, the credit risk at that time would be equal to the net derivative asset position, if any, for that counterparty. The Company minimizes the credit or repayment risk in derivatives by entering into transactions with high credit-quality counterparties that are reviewed periodically by the Company’s Credit Risk Management division. The Company’s derivatives may also be governed by an ISDA; depending on the nature of the derivative transactions, bilateral collateral agreements may be in place as well. When the Company has more than one outstanding derivative transaction with a single counterparty and there exists a legally enforceable master netting agreement with the counterparty, the Company considers its exposure to the counterparty to be the net market value of all positions with that counterparty, if such net value is an asset to the Company, and zero, if such net value is a liability to the Company. As of June 30, 2010, the net derivative asset positions to which the Company was exposed to risk of its counterparties was $2.2 billion, representing the net of $3.3 billion in net derivative gains by counterparty, netted by counterparty where formal netting arrangements exist, adjusted for collateral of $1.1 billion that the Company holds in relation to these gain positions. As of December 31, 2009, the net derivative asset positions to which the Company was exposed to risk of its counterparties was $1.8 billion, representing the net of $2.5 billion in derivative gains by counterparty, netted by counterparty where formal netting arrangements exist, adjusted for collateral of $0.7 billion that the Company holds in relation to these gain positions.

The Company adjusted the fair value of its net derivative asset position for estimates of counterparty credit risk by $28 million and $25 million as of June 30, 2010 and December 31, 2009, respectively. See Note 13, “Fair Value Measurement and Election,” to the Consolidated Financial Statements for further discussion on quantification of counterparty credit risk.

The majority of the Company’s derivatives contain contingencies that relate to the creditworthiness of the Bank. These are contained in industry standard master trading agreements as events of default. Should the Bank be in default under any of these provisions, the Bank’s counterparties would be permitted under such master agreements to close-out at net amounts that would approximate the then-fair values of the derivatives and the netting of the amounts would produce a single sum due by one party to the other. The counterparties would have the right to apply any collateral posted by the Bank against any net amount owed by the Bank. In addition, certain of the Company’s derivative liability positions, totaling $1.2 billion in fair value, contain provisions conditioned on downgrades of the Bank’s credit rating. These provisions, if triggered, would either give rise to an ATE that permits the counterparties to close-out net and apply collateral or, where a CSA is present, require the Bank to post additional collateral. Collateral posting requirements generally result from differences in the fair value of the net derivative liability compared to specified collateral thresholds at different ratings levels of the Bank, both of which are negotiated provisions within each CSA. At June 30, 2010, the Bank carried senior long-term debt ratings of BBB+/A2 from two of the major ratings agencies. For illustrative purposes, if the Bank were downgraded to BBB-/Baa3, ATEs would be triggered in derivative liability contracts that had a total fair value of $20 million at June 30, 2010, against which the Bank had posted collateral of $10 million; ATEs do not exist at lower ratings levels. At June 30, 2010, $1.2 billion in fair value of derivative liabilities are subject to CSAs, against which the Bank has posted $1.1 billion in collateral. If requested by the counterparty per the terms of the CSA, the Bank would be required to post estimated additional collateral against these contracts of $29 million if the Bank were downgraded to BBB-/Baa3, and any further downgrades to BB+/Ba1 or below would require the posting of an additional $17 million. Such collateral posting amounts may be more or less than the Bank’s estimates based on the specified terms of each CSA as to the timing of a collateral calculation and whether the Bank and its counterparties differ on their estimates of the fair values of the derivatives or collateral.

Derivatives also expose the Company to market risk. Market risk is the adverse effect that a change in market factors, such as interest rates, currency rates, equity prices, or implied volatility, has on the value of a derivative. The Company manages the

Notes to Consolidated Financial Statements (Unaudited)-Continued

market risk associated with its derivatives by establishing and monitoring limits on the types and degree of risk that may be undertaken. The Company continually measures this risk by using a VAR methodology.

The table below presents the Company’s derivative positions at June 30, 2010. The notional amounts in the table are presented on a gross basis and have been classified within Asset Derivatives or Liability Derivatives based on the estimated fair value of the individual contract at June 30, 2010. On the Consolidated Balance Sheets, the fair values of derivatives with counterparties with master netting agreements are recorded on a net basis. However, for purposes of the table below, the gross positive and gross negative fair value amounts associated with the respective notional amounts are presented without consideration of any netting agreements. For contracts constituting a combination of options that contain a written option and a purchased option (such as a collar), the notional amount of each option is presented separately, with the purchased notional amount being presented as an Asset Derivative and the written notional amount being presented as a Liability Derivative. The fair value of a combination of options is presented as a single value with the purchased notional amount if the combined fair value is positive, and with the written notional amount if the combined fair value is negative.


	As of June 30, 2010
	Asset Derivatives				Liability Derivatives
(Dollars in thousands)	Balance Sheet Classification	Notional Amounts		Fair Value	Balance Sheet Classification	Notional Amounts		Fair Value
Derivatives designated in cash flow hedging relationships ⁵
Equity contracts hedging:
Securities available for sale	Trading assets	$1,546,752		$127,216	Trading liabilities	$1,546,752		$-
Interest rate contracts hedging:
Floating rate loans	Trading assets	16,350,000		1,091,056		-		-

Total		17,896,752		1,218,272		1,546,752		-


Derivatives not designated as hedging instruments ⁶
Interest rate contracts covering:
Fixed rate debt	Trading assets	2,923,085		289,842	Trading liabilities	295,000		32,838
Corporate bonds and loans		-		-	Trading liabilities	44,575		4,138
MSRs	Other assets	23,370,000		359,332	Other liabilities	2,255,000		74,537
LHFS, IRLCs, LHFI-FV	Other assets	3,718,910	³	15,591	Other liabilities	4,942,200		71,216
Trading activity	Trading assets	108,992,754	¹	4,346,524	Trading liabilities	95,736,330		4,286,213

Foreign exchange rate contracts covering:
Foreign-denominated debt and commercial loans		-		-	Trading liabilities	1,467,481		216,199
Trading activity	Trading assets	1,727,824		81,195	Trading liabilities	1,767,455		72,737

Credit contracts covering:
Loans	Trading assets	115,000		811	Trading liabilities	177,000		1,743
Trading activity	Trading assets	737,334	²	10,856	Trading liabilities	704,328	²	6,329

Equity contracts - Trading activity	Trading assets	3,679,709	¹	408,978	Trading liabilities	7,191,552		509,733

Other contracts:
IRLCs and other	Other assets	5,573,013		87,401	Other liabilities	155,320	⁴	34,321	⁴
Trading activity	Trading assets	79,082		6,243	Trading liabilities	91,497		6,081

Total		150,916,711		5,606,773		114,827,738		5,316,085


Total derivatives		168,813,463		$6,825,045		116,374,490		$5,316,085

¹ Amounts include $28.1 billion and $0.5 billion of notional related to interest rate futures and equity futures, respectively. These futures contracts settle in cash daily and therefore, no derivative asset or liability is recorded.

2 Asset and liability amounts include $1 million and $9 million, respectively, of notional from purchased and written interest rate swap risk participation agreements, respectively, which notional is calculated as the notional of the interest rate swap participated adjusted by the relevant risk weighted assets conversion factor.

³ Amount includes $1.4 billion of notional amounts related to interest rate futures. These futures contracts settle in cash daily and therefore, no derivative asset or liability is recorded.

⁴Includes a $34 million derivative liability recorded in other liabilities in the Consolidated Balance Sheets, related to a notional amount of $134 million. This derivative was established upon the sale of Visa Class B shares in the second quarter of 2009 as discussed in Note 11, "Reinsurance Arrangements and Guarantees,” to the Consolidated Financial Statements.

⁵See “Cash Flow Hedges” in this Note for further discussion.

⁶See “Economic Hedging and Trading Activities” in this Note for further discussion.

Notes to Consolidated Financial Statements (Unaudited)-Continued

The table below presents the Company’s derivative positions at December 31, 2009.


	As of December 31, 2009
	Asset Derivatives				Liability Derivatives
(Dollars in thousands)	Balance Sheet Classification	Notional Amounts		Fair Value	Balance Sheet Classification	Notional Amounts		Fair Value
Derivatives designated in cash flow hedging relationships ⁵
Equity contracts hedging:
Securities available for sale	Trading assets	$1,546,752		$-	Trading liabilities	$1,546,752		$45,866
Interest rate contracts hedging:
Floating rate loans	Trading assets	15,550,000		865,391	Trading liabilities	3,000,000		22,202

Total		17,096,752		865,391		4,546,752		68,068


Derivatives not designated as hedging instruments ⁶
Interest rate contracts covering:
Fixed rate debt	Trading assets	3,223,085		200,183	Trading liabilities	295,000		10,335
Corporate bonds and loans		-		-	Trading liabilities	47,568		4,002
MSRs	Other assets	3,715,000		61,719	Other liabilities	3,810,000		57,048
LHFS, IRLCs, LHFI-FV	Other assets	7,461,935	³	75,071	Other liabilities	1,425,858		20,056
Trading activity	Trading assets	94,139,597	¹	3,289,667	Trading liabilities	83,483,088		3,242,861

Foreign exchange rate contracts covering:
Foreign-denominated debt and commercial loans	Trading assets	1,164,169		96,143	Trading liabilities	656,498		144,203
Trading activity	Trading assets	2,059,097		107,065	Trading liabilities	2,020,240		96,266

Credit contracts covering:
Loans	Trading assets	115,000		771	Trading liabilities	240,750		4,051
Trading activity	Trading assets	170,044	²	6,344	Trading liabilities	156,139	²	3,837

Equity contracts - Trading activity	Trading assets	3,344,875	¹	446,355	Trading liabilities	6,907,657		672,221

Other contracts:

IRLCs and other	Other assets	1,870,040		13,482	Other liabilities	1,560,337	⁴	48,134	⁴
Trading activity	Trading assets	39,117		7,095	Trading liabilities	51,546		6,929

Total		117,301,959		4,303,895		100,654,681		4,309,943


Total derivatives		$134,398,711		$5,169,286		$105,201,433		$4,378,011

¹ Amounts include $18.2 billion and $0.5 billion of notional related to interest rate futures and equity futures, respectively. These futures contracts settle in cash daily and therefore no derivative asset or liability is recorded.

² Asset and liability amounts include $4 million and $9 million, respectively, of notional from purchased and written interest rate swap risk participation agreements, respectively, which notional is calculated as the notional of the interest rate swap participated adjusted by the relevant risk weighted assets conversion factor.

³Amount includes $2.0 billion of notional amounts related to interest rate futures. These futures contracts settle in cash daily and therefore no derivative asset or liability is recorded.

⁴Includes a $40 million derivative liability recorded in other liabilities in the Consolidated Balance Sheets, related to a notional amount of $134 million. This derivative was established upon the sale of Visa Class B shares in the second quarter of 2009 as discussed in Note 11, "Reinsurance Arrangements and Guarantees,” to the Consolidated Financial Statements.

⁵See “Cash Flow Hedges” in this Note for further discussion.

⁶See “Economic Hedging and Trading Activities” in this Note for further discussion.

The impacts of derivative financial instruments on the Consolidated Statements of Income/(Loss) and the Consolidated Statements of Shareholders’ Equity for the three and six months ended June 30, 2010 and 2009 are presented below. The impacts are segregated between those derivatives that are designated in hedging relationships and those that are used for economic hedging or trading purposes, with further identification of the underlying risks in the derivatives and the hedged items, where appropriate. The tables do not disclose the financial impact of the activities that these derivative instruments are intended to hedge, for both economic hedges and those instruments designated in formal, qualifying hedging relationships.

Notes to Consolidated Financial Statements (Unaudited)-Continued


	Three Months Ended June 30, 2010

(Dollars in thousands) Derivatives in cash flow hedging relationships	Amount of pre-tax gain recognized in OCI on Derivatives (Effective Portion)	Classification of gain reclassified from AOCI into Income (Effective Portion)	Amount of pre-tax gain reclassified from AOCI into Income (Effective Portion)¹
Equity contracts hedging:
Securities available for sale	$105,931
Interest rate contracts hedging:
Floating rate loans	447,355	Interest and fees on loans	$124,203

Total	$553,286		$124,203


	Six Months Ended June 30, 2010
(Dollars in thousands) Derivatives in cash flow hedging relationships	Amount of pre-tax gain/(loss) recognized in OCI on Derivatives (Effective Portion)	Classification of gain/(loss) reclassified from AOCI into Income (Effective Portion)	Amount of pre-tax gain/(loss) reclassified from AOCI into Income (Effective Portion)¹
Equity contracts hedging:
Securities available for sale	$166,519
Interest rate contracts hedging:
Floating rate loans	735,406	Interest and fees on loans	$251,076

Total	$901,925		$251,076


(Dollars in thousands) Derivatives not designated as hedging instruments	Classification of gain/(loss) recognized in Income on Derivatives	Amount of gain/(loss) recognized in Income on Derivatives for the three months ended June 30, 2010	Amount of gain/(loss) recognized in Income on Derivatives for the six months ended June 30, 2010
Interest rate contracts covering:
Fixed rate debt	Trading account profits/(losses) and commissions	$79,676	$125,097
Corporate bonds and loans	Trading account profits/(losses) and commissions	(471)	(1,203)
MSRs	Mortgage servicing related income	392,325	468,668
LHFS, IRLCs, LHFI-FV	Mortgage production related income	(140,079)	(209,913)
Trading activity	Trading account profits/(losses) and commissions	(23)	29,780

Foreign exchange rate contracts covering:
Foreign-denominated debt and commercial loans	Trading account profits/(losses) and commissions	(106,439)	(202,070)
Trading activity	Trading account profits/(losses) and commissions	18,920	25,884

Credit contracts covering:
Loans	Trading account profits/(losses) and commissions	1,082	739
Trading activity	Trading account profits/(losses) and commissions	3,452	3,834

Equity contracts - trading activity	Trading account profits/(losses) and commissions	(920)	5,884

Other contracts:
IRLCs	Mortgage production related income	118,666	210,822
Trading activity	Trading account profits/(losses) and commissions	122	144

Total		$366,311	$457,666

¹ During the three and six months ended June 30, 2010, the Company reclassified $24 million and $53 million, respectively, in pre-tax gains from AOCI into net interest income. These gains related to hedging relationships that have been previously terminated or de-designated.

Notes to Consolidated Financial Statements (Unaudited)-Continued


	Three Months Ended June 30, 2009

(Dollars in thousands) Derivatives in cash flow hedging relationships	Amount of pre-tax gain/(loss) Recognized in OCI on Derivative (Effective Portion)	Classification of gain/(loss) Reclassified from AOCI into Income (Effective Portion)	Amount of pre-tax gain/(loss) Reclassified from AOCI into Income (Effective Portion)¹
Equity contracts hedging:
Securities available for sale	($142,501)		$-
Interest rate contracts hedging:
Floating rate loans	(260,806)	Interest and fees on loans	114,956
Floating rate CDs	(672)	Interest on deposits	(22,239)

Total	($403,979)		$92,717


	Six Months Ended June 30, 2009

(Dollars in thousands) Derivatives in cash flow hedging relationships	Amount of pre-tax gain/(loss) Recognized in OCI on Derivative (Effective Portion)	Classification of gain/(loss) Reclassified from AOCI into Income (Effective Portion)	Amount of pre-tax gain/(loss) Reclassified from AOCI into Income (Effective Portion)¹
Equity contracts hedging:
Securities available for sale	($132,519)		$-
Interest rate contracts hedging:
Floating rate loans	(207,757)	Interest and fees on loans	223,987
Floating rate CDs	(1,494)	Interest on deposits	(45,227)
Floating rate debt	(14)	Interest on long-term debt	(1,333)

Total	($341,784)		$177,427


(Dollars in thousands) Derivatives not designated as hedging instruments	Classification of gain/(loss) Recognized in Income on Derivative	Amount of gain/(loss) Recognized in Income on Derivatives for the three months ended June 30, 2009	Amount of gain/(loss) Recognized in Income on Derivatives for the six months ended June 30, 2009
Interest rate contracts covering:
Fixed rate public debt	Trading account profits and commissions	($73,870)	($101,814)
Corporate bonds and loans	Trading account profits and commissions	5,080	7,485
MSRs	Mortgage servicing income	(139,787)	(78,576)
LHFS, IRLCs, LHFI-FV	Mortgage production income	96,450	(10,181)
Trading activity	Trading account profits and commissions	(6,307)	4,889

Foreign exchange rate contracts covering:
Foreign-denominated debt and commercial loans	Trading account profits and commissions	140,387	61,647
Trading activity	Trading account profits and commissions	(34,265)	695

Credit contracts covering:
Loans	Trading account profits and commissions	(6,865)	(9,626)
Other	Trading account profits and commissions	(5,211)	(3,600)

Equity contracts - trading activity	Trading account profits and commissions	8,731	48,686

Other contracts:
IRLCs	Mortgage production income	66,238	343,860
Trading activity	Trading account profits and commissions	892	925

Total		$51,473	$264,390

¹ During the three and six months ended June 30, 2009, the Company reclassified $8 million and $16 million, respectively, in pre-tax gains from AOCI into net interest income. These gains related to hedging relationships under SFAS No. 133 that have been previously terminated or de-designated.

Credit Derivatives

As part of its trading businesses, the Company enters into contracts that are, in form or substance, written guarantees: specifically, CDS, swap participations, and TRS. The Company accounts for these contracts as derivative instruments and, accordingly, records these contracts at fair value, with changes in fair value recorded in trading account profits/(losses) and commissions.

The Company writes CDS, which are agreements under which the Company receives premium payments from its counterparty for protection against an event of default of a reference asset. In the event of default under the CDS, the Company would either net cash settle or make a cash payment to its counterparty and take delivery of the defaulted reference asset, from which the Company may recover all, a portion, or none of the credit loss, depending on the performance of the reference asset. Events of default, as defined in the CDS agreements, are generally triggered upon the failure to pay and similar events related to the issuer(s) of the reference asset. As of June 30, 2010, all written CDS contracts reference single name corporate credits or corporate credit indices. When the Company has written CDS, it has generally entered into offsetting CDS for the underlying reference asset, under which the Company paid a premium to its counterparty for protection against an event of default on the reference asset. The counterparties to these purchased CDS are generally of high creditworthiness and typically have ISDA master agreements in place that subject the CDS to master netting provisions, thereby mitigating the risk of non-payment to the Company. As such, at June

Notes to Consolidated Financial Statements (Unaudited)-Continued

30, 2010, the Company does not have any significant risk of making a non-recoverable payment on any written CDS. During 2010 and 2009, the only instances of default on written CDS were driven by credit indices with constituent credit default. In all cases where the Company made resulting cash payments to settle, the Company collected like amounts from the counterparties to the offsetting purchased CDS. At June 30, 2010, the written CDS had remaining terms ranging from six months to five years. The maximum guarantees outstanding at June 30, 2010 and December 31, 2009, as measured by the gross notional amounts of written CDS, were $128 million and $130 million, respectively. At June 30, 2010 and December 31, 2009, the gross notional amounts of purchased CDS contracts, which represent benefits to, rather than obligations of, the Company, were $117 million and $185 million, respectively. The fair values of the written CDS were $1 million and $2 million at June 30, 2010 and December 31, 2009, respectively, and the fair values of the purchased CDS were $4 million at both June 30, 2010, and December 31, 2009.

The Company writes risk participations, which are credit derivatives whereby the Company has guaranteed payment to a dealer counterparty in the event that the counterparty experiences a loss on a derivative instrument, such as an interest rate swap, due to a failure to pay by the counterparty’s customer (the “obligor”) on that derivative instrument. The Company monitors its payment risk on its risk participations by monitoring the creditworthiness of the obligors, which is based on the normal credit review process the Company would have performed had it entered into the derivative instruments directly with the obligors. The obligors are all corporations or partnerships. However, the Company continues to monitor the creditworthiness of its obligors and the likelihood of payment could change at any time due to unforeseen circumstances. To date, no material losses have been incurred related to the Company’s written swap participations. At June 30, 2010, the remaining terms on these risk participations generally ranged from one month to eight years, with a weighted average on the maximum estimated exposure of 3.1 years. The Company’s maximum estimated exposure to written swap participations, as measured by projecting a maximum value of the guaranteed derivative instruments based on interest rate curve simulations and assuming 100% default by all obligors on the maximum values, was $84 million and $83 million at June 30, 2010 and December 31, 2009, respectively. The fair values of the written swap participations were de minimis at June 30, 2010 and December 31, 2009. As part of its trading activities, the Company may enter into purchased swap participations, but such activity is not matched, as discussed herein related to CDS or TRS.

The Company has also entered into TRS contracts on loans. The Company’s TRS business consists of matched trades, such that when the Company pays depreciation on one TRS, it receives the same depreciation on the matched TRS. As such, the Company does not have any long or short exposure, other than credit risk of its counterparty, which is mitigated through collateralization. The Company typically receives initial cash collateral from the counterparty upon entering into the TRS and is entitled to additional collateral as the fair value of the underlying reference assets deteriorate. The Company temporarily suspended this business and unwound its positions as of December 31, 2009 without incurring losses. Trading resumed during 2010 and at June 30, 2010, there were $594 million of outstanding and offsetting TRS notional balances. The fair values of the TRS derivative assets and liabilities were $6 million and $4 million at June 30, 2010, respectively, and related collateral held at June 30, 2010 was $246 million.

Notes to Consolidated Financial Statements (Unaudited)-Continued

Cash Flow Hedges

The Company utilizes a comprehensive risk management strategy to monitor sensitivity of earnings to movements in interest rates. Specific types of funding and principal amounts hedged are determined based on prevailing market conditions and the shape of the yield curve. In conjunction with this strategy, the Company may employ various interest rate derivatives as risk management tools to hedge interest rate risk from recognized assets and liabilities or from forecasted transactions. The terms and notional amounts of derivatives are determined based on management’s assessment of future interest rates, as well as other factors. The Company establishes parameters for derivative usage, including identification of assets and liabilities to hedge, derivative instruments to be utilized, and notional amounts of hedging relationships. At June 30, 2010, the Company’s only outstanding interest rate hedging relationships involve interest rate swaps that have been designated as cash flow hedges of probable forecasted transactions related to recognized floating rate loans.

Interest rate swaps have been designated as hedging the exposure to the benchmark interest rate risk associated with floating rate loans. The maximum range of hedge maturities for hedges of floating rate loans is one to five years, with the weighted average being 3.4 years. Ineffectiveness on these hedges was de minimis during the six months ended June 30, 2010. As of June 30, 2010, $345 million, net of tax, of the deferred net gains on derivatives that are recorded in AOCI are expected to be reclassified to net interest income over the next twelve months in connection with the recognition of interest income on these hedged items.

During the third quarter of 2008, the Company executed The Agreements on 30 million common shares of Coke. A consolidated subsidiary of SunTrust owns 22.9 million Coke common shares and a consolidated subsidiary of the Bank owns 7.1 million Coke common shares. These two subsidiaries entered into separate derivative contracts on their respective holdings of Coke common shares with a large, unaffiliated financial institution (the “Counterparty”). Execution of The Agreements (including the pledges of the Coke common shares pursuant to the terms of The Agreements) did not constitute a sale of the Coke common shares under U.S. GAAP for several reasons, including that ownership of the common shares was not legally transferred to the Counterparty. The Agreements were zero-cost equity collars at inception, which caused the Agreements to be derivatives in their entirety. The Company has designated The Agreements as cash flow hedges of the Company’s probable forecasted sales of its Coke common shares, which are expected to occur between 6.5 and 7 years from The Agreements’ effective date, for overall price volatility below the strike prices on the floor (purchased put) and above the strike prices on the ceiling (written call). Although the Company is not required to deliver its Coke common shares under The Agreements, the Company has asserted that it is probable that it will sell all of its Coke common shares at or around the settlement date of The Agreements. The Federal Reserve’s approval for Tier 1 capital treatment was significantly based on this expected disposition of the Coke common shares under The Agreements or in another market transaction. Both the sale and the timing of such sale remain probable to occur as designated. At least quarterly, the Company assesses hedge effectiveness and measures hedge ineffectiveness with the effective portion of the changes in fair value of The Agreements recorded in AOCI and any ineffective portions recorded in trading account profits/(losses) and commissions. None of the components of The Agreements’ fair values are excluded from the Company’s assessments of hedge effectiveness. Potential sources of ineffectiveness include changes in market dividends and certain early termination provisions. Ineffectiveness was de minimis during the three months ended June 30, 2010. The Company recognized $7 million of ineffectiveness gains during the six months ended June 30, 2010 and $4 million in ineffectiveness gains during both the three and six months ended June 30, 2009, which was recorded in trading account profits/(losses) and commissions. Other than potential measured hedge ineffectiveness, no amounts are expected to be reclassified from AOCI over the next twelve months and any remaining amounts recorded in AOCI will be reclassified to earnings when the probable forecasted sales of the Coke common shares occur.

Economic Hedging and Trading Activities

In addition to designated hedging relationships, the Company also enters into derivatives as an end user as a risk management tool to economically hedge risks associated with certain non-derivative and derivative instruments, along with entering into derivatives in a trading capacity with its clients.

The primary risks that the Company economically hedges are interest rate risk, foreign exchange risk, and credit risk. The economic hedging activities are accomplished by entering into individual derivatives or by using derivatives on a macro basis, and generally accomplish the Company’s goal of mitigating the targeted risk. To the extent that specific derivatives are associated with specific hedged items, the notional amounts, fair values, and gains/(losses) on the derivatives are illustrated in the tables in this footnote.

Notes to Consolidated Financial Statements (Unaudited)-Continued

•

The Company utilizes interest rate derivatives to mitigate exposures from various instruments.

^¡

The Company is subject to interest rate risk on its fixed rate debt. As market interest rates move, a portion of the fair value of the Company’s debt is affected. To protect against this risk on certain debt issuances that the Company has elected to carry at fair value, the Company has entered into pay variable-receive fixed interest rate swaps (in addition to entering into certain non-derivative instruments on a macro basis) that decrease in value in a rising rate environment and increase in value in a declining rate environment.

^¡

The Company is exposed to interest rate risk associated with MSRs, which the Company hedges with a combination of derivatives, including MBS forward and option contracts, and interest rate swap and swaption contracts. At January 1, 2010, the Company elected fair value for MSRs previously accounted for at LOCOM which resulted in an increase in associated hedging activity during the current year.

^¡

The Company enters into MBS forward and option contracts, interest rate swap and swaption contracts, futures contracts, and eurodollar options to mitigate interest rate risk associated with IRLCs, mortgage LHFS, and mortgage loans held for investment reported at fair value.

•

The Company is exposed to foreign exchange rate risk associated with certain senior notes denominated in euros and pound sterling. This risk is economically hedged with cross currency swaps, which receive either euros or pound sterling and pay U.S. dollars. Interest expense on the Consolidated Statements of Income/(Loss) reflects only the contractual interest rate on the debt based on the average spot exchange rate during the applicable period, while fair value changes on the derivatives and valuation adjustments on the debt are both recorded within trading account profits/(losses) and commissions.

•

The Company enters into CDS to hedge credit risk associated with certain loans held within its Corporate and Investment Banking line of business.

•

Trading activity, in the tables in this footnote, primarily includes interest rate swaps, equity derivatives, CDS, futures, options and foreign currency contracts. These derivatives are entered into in a dealer capacity to facilitate client transactions or are utilized as a risk management tool by the Company as an end user in certain macro-hedging strategies. The macro-hedging strategies are focused on managing the Company’s overall interest rate risk exposure that is not otherwise hedged by derivatives or in connection with specific hedges and, therefore, the Company does not specifically associate individual derivatives with specific assets or liabilities.

Note 11 – Reinsurance Arrangements and Guarantees

Reinsurance

The Company provides mortgage reinsurance on certain mortgage loans through contracts with several primary mortgage insurance companies. Under these contracts, the Company provides aggregate excess loss coverage in a mezzanine layer in exchange for a portion of the pool’s mortgage insurance premium. As of June 30, 2010, approximately $14.1 billion of mortgage loans were covered by such mortgage reinsurance contracts. The reinsurance contracts are intended to place limits on the Company’s maximum exposure to losses by defining the loss amounts ceded to the Company as well as by establishing trust accounts for each contract. The trust accounts, which are comprised of funds contributed by the Company plus premiums earned under the reinsurance contracts, are maintained to fund claims made under the reinsurance contracts. If claims exceed funds held in the trust accounts, the Company does not intend to make additional contributions beyond future premiums earned under the existing contracts.

At June 30, 2010, the total loss exposure ceded to the Company was approximately $628 million; however, the maximum amount of loss exposure based on funds held in each separate trust account, including net premiums due to the trust accounts, was limited to $278 million. Of this amount, $274 million of losses have been reserved for as of June 30, 2010, reducing the Company’s net remaining loss exposure to $4 million. To date, actual claims paid by the trusts have been limited as claims paid by the mortgage insurance companies have been delayed as a result of elongated foreclosure timelines. The Company’s evaluation of the required reserve amount includes an estimate of claims to be paid by the trust related to loans in default and an assessment of the sufficiency of future revenues, including premiums and investment income on funds held in the trusts, to cover future claims. Future reported losses may exceed $4 million, since future premium income will increase the amount of funds held in the trust; however, future cash losses, net of premium income, are not expected to exceed $4 million. The amount of future premium income is limited to the population of loans currently outstanding since additional loans are not being added to the reinsurance contracts; future premium income could be further curtailed to the extent the Company agrees to relinquish control of individual trusts to the mortgage insurance companies. Premium income, which totaled $10 million and $20 million for the three and six months

Notes to Consolidated Financial Statements (Unaudited)-Continued

ended June 30, 2010, respectively and $13 million and $26 million for the three and six months ended June 30, 2009, respectively, are reported as part of noninterest income. The related provision for losses, which totaled $9 million and $18 million for the three and six months ended June 30, 2010, respectively and $25 million and $95 million for the three and six months ended June 30, 2009, respectively, is reported as part of noninterest expense.

Guarantees

The Company has undertaken certain guarantee obligations in the ordinary course of business. 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, 2010. In addition, the Company has entered into certain contracts that are similar to guarantees, but that are accounted for as derivatives (see Note 10, “Derivative Financial Instruments,” to the Consolidated Financial Statements).

Visa

The Company issues and acquires credit and debit card transactions through Visa. The Company is a defendant, along with Visa U.S.A. Inc. and MasterCard International (the “Card Associations”), as well as several other banks, in one of several antitrust lawsuits challenging the practices of the Card Associations (the “Litigation”). The Company has entered into judgment and loss sharing agreements with Visa and certain other banks in order to apportion financial responsibilities arising from any potential adverse judgment or negotiated settlements related to the Litigation. Additionally, in connection with Visa’s restructuring in 2007, a provision of the original Visa By-Laws, Section 2.05j, was restated in Visa’s certificate of incorporation. Section 2.05j contains a general indemnification provision between a Visa member and Visa, and explicitly provides that after the closing of the restructuring, each member’s indemnification obligation is limited to losses arising from its own conduct and the specifically defined Litigation. The maximum potential amount of future payments that the Company could be required to make under this indemnification provision cannot be determined as there is no limitation provided under the By-Laws and the amount of exposure is dependent on the outcome of the Litigation. Since 2008, Visa has funded $5.3 billion into an escrow account, established for the purpose of funding judgments in, or settlements of, the Litigation. Agreements associated with Visa’s IPO have provisions that Visa will first use the funds in the escrow account to pay for future settlements of, or judgments in the Litigation. If the escrow account is insufficient to cover the Litigation losses, then Visa will issue additional Class A shares (“loss shares”). The proceeds from the sale of the loss shares would then be deposited in the escrow account. The issuance of the loss shares will cause a dilution of Visa’s Class B common stock as a result of an adjustment to lower the conversion factor of the Class B common stock to Class A common stock. Visa USA’s members are responsible for any portion of the settlement or loss on the Litigation after the escrow account is depleted and the value of the Class B shares is fully-diluted.

In May 2009, the Company sold its 3.2 million shares of Class B Visa Inc. common stock to another financial institution (“the Counterparty”) and entered into a derivative with the Counterparty. The Company received $112 million and recognized a gain of $112 million in connection with these transactions. Under the derivative, the Counterparty will be compensated by the Company for any decline in the conversion factor as a result of the outcome of the Litigation. Conversely, the Company will be compensated by the Counterparty for any increase in the conversion factor. The Counterparty, as a result of its ownership of the Class B common stock, will be impacted by dilutive adjustments to the conversion factor of the Class B common stock caused by the Litigation losses. A high degree of subjectivity was used in estimating the fair value of the derivative liability, and the ultimate cost to the Company could be significantly higher or lower than the $34 million recorded as of June 30, 2010.

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 CP, 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.

As of June 30, 2010 and December 31, 2009, the maximum potential amount of the Company’s obligation was $7.1 billion and $8.9 billion, respectively, for financial and performance standby letters of credit. The Company has recorded $115 million and $131 million in other liabilities for unearned fees related to these letters of credit as of June 30, 2010 and December 31, 2009, 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

Notes to Consolidated Financial Statements (Unaudited)-Continued

through the client’s underlying obligation. 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. The Company monitors its credit exposure under standby letters of credit in the same manner as it monitors other extensions of credit in accordance with credit policies. Some standby letters of credit are designed to be drawn upon and others are drawn upon only under circumstances of dispute or default in the underlying transaction to which the Company is not a party. In all cases, the Company holds the right to reimbursement from the applicant and may or may not also hold collateral to secure that right. An internal assessment of the probability of default and loss severity in the event of default is assessed consistent with the methodologies used for all commercial borrowers and the management of risk regarding letters of credit leverages the risk rating process to focus higher visibility on the higher risk and higher dollar letters of credit. The associated reserve is a component of the unfunded commitment reserve recorded in other liabilities included in the allowance for credit losses as disclosed in Note 4, “Allowance for Credit Losses,” to the Consolidated Financial Statements.

Loan Sales

STM, a consolidated subsidiary of SunTrust, originates and purchases 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, up to 25 to 30 years. Subsequent to the sale, if an inadvertent underwriting deficiency or documentation defect is discovered, STM may be obligated to reimburse the investor for losses incurred or to repurchase the mortgage loan if such deficiency or defect cannot be cured by STM within the specified period following discovery. STM’s risk of loss under its representations and warranties is largely driven by borrower payment performance since investors will perform extensive reviews of delinquent loans as a means of mitigating losses.

STM maintains a liability for this loss contingency, which is initially based on the estimated fair value of the Company’s contingency at the time loans are sold and the guarantee liability is created. Subsequently, STM estimates losses that have been incurred and increases the liability if estimated incurred losses exceed the guarantee liability. As of June 30, 2010 and December 31, 2009, the liability for contingent losses related to sold loans totaled $256 million and $200 million, respectively. The following table summarizes the changes in the Company’s reserve for mortgage loan repurchase losses.


	Three Months Ended June 30		Six Months Ended June 30
(Dollars in thousands)	2010	2009	2010	2009
Balance at beginning of period	$209,613	$93,191	$199,856	$91,780
Provision	148,331	62,461	275,875	88,352
Charge-offs	(102,320)	(63,460)	(220,107)	(87,940)

Balance at end of period	$255,624	$92,192	$255,624	$92,192

During the six months ended June 30, 2010 and 2009, SunTrust repurchased or otherwise settled mortgages with balances of $375 million and $197 million, respectively, related to investor demands. As of June 30, 2010 and December 31, 2009, the carrying value of outstanding repurchased mortgage loans, exclusive of any allowance for loan losses, totaled $170 million and $146 million, respectively, of which $114 million and $98 million, respectively, were nonperforming.

STM also maintains a liability for contingent losses related to MSR sales, which totaled $2 million and $3 million as of June 30, 2010 and December 31, 2009, respectively.

Contingent Consideration

The Company has contingent payment obligations related to certain business combination transactions. Payments are calculated using certain post-acquisition performance criteria. Arrangements entered into prior to January 1, 2009 are not recorded as liabilities; whereas arrangements entered into subsequent to that date are recorded as liabilities. The potential obligation associated with these arrangements was $7 million and $13 million as of June 30, 2010 and December 31, 2009, respectively, of which $4 million was recorded as a liability representing the fair value of the contingent payments as of June 30, 2010 and December 31, 2009. If required, these contingent payments will be payable at various times over the next five years.

Notes to Consolidated Financial Statements (Unaudited)-Continued

Public Deposits

The Company holds public deposits from various states in which it does business. Individual state laws require banks to collateralize public deposits, typically as a percentage of their public deposit balance in excess of FDIC insurance and may also require a cross-guarantee among all banks holding public deposits of the individual state. The amount of collateral required varies by state and may also vary by institution within each state, depending on the individual state’s risk assessment of depository institutions. Certain of the states in which the Company holds public deposits use a pooled collateral method, whereby in the event of default of a bank holding public deposits, the collateral of the defaulting bank is liquidated to the extent necessary to recover the loss of public deposits of the defaulting bank. To the extent the collateral is insufficient, the remaining public deposit balances of the defaulting bank are recovered through an assessment, from the other banks holding public deposits in that state. The maximum potential amount of future payments the Company could be required to make is dependent on a variety of factors, including the amount of public funds held by banks in the states in which the Company also holds public deposits and the amount of collateral coverage associated with any defaulting bank. Individual states appear to be monitoring risk relative to the current economic environment and evaluating collateral requirements; therefore, the likelihood that the Company would have to perform under this guarantee is dependent on whether any banks holding public funds default as well as the adequacy of collateral coverage.

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 securitization activities, underwriting agreements, merger and acquisition agreements, loan sales, contractual commitments, payment processing sponsorship agreements, 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.

STIS and STRH, 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 STRH 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 STRH 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 month periods ended June 30, 2010 and 2009, STIS and STRH experienced minimal net losses as a result of the indemnity. The clearing agreements expire in May 2015 for both STIS and STRH.

SunTrust Community Capital, a SunTrust subsidiary, previously obtained state and federal tax credits through the construction and development of affordable housing properties and continues to obtain state and federal tax credits through investments as a limited partner in affordable housing developments. SunTrust Community Capital 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, 2010, SunTrust Community Capital has completed six tax credit sales containing guarantee provisions stating that SunTrust Community Capital will make payment to the outside investors if the tax credits become ineligible. SunTrust Community Capital 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 from inception. As of June 30, 2010, the maximum potential amount that SunTrust Community Capital could be obligated to pay under these guarantees is $39 million; however, SunTrust Community Capital can seek recourse against the general partner. Additionally, SunTrust Community Capital can seek reimbursement from cash flow and residual values of the underlying affordable housing properties provided that the properties retain value. As of June 30, 2010 and December 31, 2009, $8 million and $9 million was accrued representing the remainder of tax credits to be delivered, and were recorded in other liabilities on the Consolidated Balance Sheets.

Note 12 - 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.

Notes to Consolidated Financial Statements (Unaudited)-Continued

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, 2010, the Company owned $46.6 billion in residential mortgage loans and home equity lines, representing 41% of total loans, $2.8 billion of residential construction loans, representing 3% of total loans, and an additional $14.4 billion in commitments to extend credit on home equity lines and $12.8 billion in mortgage loan commitments. At December 31, 2009, the Company had $46.7 billion in residential mortgage loans and home equity lines, representing 41% of total loans, $3.8 billion of residential construction loans, representing 3% of total loans and an additional $15.2 billion in commitments to extend credit on home equity lines and $12.2 billion in mortgage loan commitments. The Company originates and retains certain residential mortgage loan products that include features such as interest only loans, high LTV loans, and low initial interest rate loans. As of June 30, 2010, the Company owned $14.2 billion of interest only loans, primarily with a 10 year interest only period. Approximately $1.9 billion of those loans had combined original LTV ratios in excess of 80% with no mortgage insurance. Additionally, the Company owned approximately $3.0 billion of amortizing loans with combined original LTV ratios in excess of 80% with no mortgage insurance. The Company attempts to mitigate and control the risk in each loan type through 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 outstanding loans were $472 million and $572 million as of June 30, 2010 and December 31, 2009, respectively.

Note 13 - Fair Value Measurement and Election

The Company carries certain assets and liabilities at fair value on a recurring basis and appropriately classifies them as level 1, level 2 or level 3 within the fair value hierarchy. The Company’s recurring fair value measurements are based on a requirement to carry such assets and liabilities at fair value or the Company’s election to carry certain financial assets and financial liabilities at fair value. Assets and liabilities that are required to be carried at fair value on a recurring basis include trading securities, securities AFS, and derivative financial instruments. Assets and liabilities that the Company has elected to carry at fair value on a recurring basis include certain loans and LHFS, MSRs, certain brokered deposits, and certain issuances of fixed rate debt.

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 also 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. In cases where the Company believed that fair value was more representative of the results of its activities, the Company elected to carry certain financial instruments at fair value, as discussed further herein.

The classification of an instrument as level 3 versus level 2 involves judgment and is based on a variety of subjective factors. A market is considered “inactive” if significant decreases in the volume and level of activity for the asset or liability have been observed. In determining whether a market is inactive, the Company evaluates such factors as the number of recent transactions in either the primary or secondary markets, whether price quotations are current, the nature of the market participants, the variability of price quotations, the significance of bid/ask spreads, declines in (or the absence of) new issuances and the availability of public information. Inactive markets necessitate the use of additional judgment when valuing financial instruments, such as pricing matrices, cash flow modeling and the selection of an appropriate discount rate. The assumptions used to estimate the value of an instrument where the market was inactive were based on the Company’s assessment of the assumptions a market participant would use to value the instrument in an orderly transaction and included considerations of illiquidity in the current market environment. Where the Company determined that a significant decrease in the volume and level of activity had occurred, the Company was then required to evaluate whether significant adjustments were required to market data to arrive at an exit price.

Beginning January 1, 2010, the Company changed its policy for recording transfers into and out of the fair value hierarchy levels in response to amended U.S. GAAP. All such transfers are now assumed to be as of the end of the quarter in which the transfer occurred, whereas, previously, the Company assumed transfers into levels to occur at the beginning of the quarter and transfers out of levels to occur at the end of the quarter. None of the transfers into or out of level 3 have been the result of using alternative valuation approaches to estimate fair values.

Notes to Consolidated Financial Statements (Unaudited)-Continued

Recurring Fair Value Measurements


		Fair Value Measurements at June 30, 2010 Using
(Dollars in thousands)	Assets/Liabilities	Quoted Prices In Active Markets for Identical Assets/Liabilities (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)

Assets
Trading assets
U.S. Treasury securities	$360,217	$360,217	$-	$-
Federal agency securities	482,014	-	482,014	-
U.S. states and political subdivisions	52,004	-	42,576	9,428
RMBS - agency	230,455	-	230,455	-
RMBS - private	3,510	-	-	3,510
CDO securities	116,844	-	-	116,844
ABS	48,605	-	276	48,329
Corporate and other debt securities	641,501	-	641,501	-
Commercial paper	59,904	-	59,904	-
Equity securities	217,918	1,993	95,959	119,966
Derivative contracts	3,039,885	106,348	2,806,321	127,216
Trading loans	912,945	-	912,945	-

Total trading assets	6,165,802	468,558	5,271,951	425,293


Securities available for sale
U.S. Treasury securities	5,352,154	5,352,154	-	-
Federal agency securities	954,376	-	954,376	-
U.S. states and political subdivisions	859,184	-	734,513	124,671
RMBS - agency	16,198,823	-	16,198,823	-
RMBS - private	365,361	-	-	365,361
ABS	922,889	-	815,039	107,850
Corporate and other debt securities	504,191	-	499,191	5,000
Common stock of The Coca-Cola Company	1,503,600	1,503,600	-	-
Other equity securities	937,782	212	232,440	705,130	³

Total securities available for sale	27,598,360	6,855,966	19,434,382	1,308,012

Loans held for sale
Residential loans	2,218,383	-	2,114,552	103,831
Corporate and other loans	306,087	-	301,012	5,075
Loans	410,870	-	-	410,870
Other intangible assets ²	1,297,668	-	-	1,297,668
Other assets ¹	448,216	-	360,815	87,401

Liabilities
Trading liabilities
U.S. Treasury securities	439,137	439,137	-	-
Federal agency securities	17,169	-	17,169	-
Corporate and other debt securities	385,463	-	385,463	-
Equity securities	148	148	-	-
Derivative contracts	1,813,175	57,452	1,755,723	-

Total trading liabilities	2,655,092	496,737	2,158,355	-

Brokered deposits	1,203,858	-	1,203,858	-
Long-term debt	3,682,630	-	3,682,630	-
Other liabilities ¹	165,966	-	131,645	34,321

¹These amounts include IRLCs and derivative financial instruments entered into by the Mortgage line of business to hedge its interest rate risk along with a derivative associated with the Company’s sale of Visa shares during the quarter ended June 30, 2009.

²This amount includes MSRs carried at fair value.

³Includes $343 million of FHLB of Cincinnati and FHLB of Atlanta stock stated at par value and $361 million of Federal Reserve Bank stock stated at par value.

Notes to Consolidated Financial Statements (Unaudited)-Continued


		Fair Value Measurements at December 31, 2009, Using
(Dollars in thousands)	Assets/Liabilities	Quoted Prices In Active Markets for Identical Assets/Liabilities (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)

Assets
Trading assets
U.S. Treasury and federal agencies	$1,150,323	$498,781	$651,542	$-
U.S. states and political subdivisions	58,520	-	51,119	7,401
RMBS - agency	94,164	-	94,164	-
RMBS - private	13,889	-	-	13,889
CDO securities	174,886	-	-	174,886
Corporate debt securities	464,684	-	464,684	-
Commercial paper	639	-	639	-
Other debt securities	25,886	-	1,183	24,703
Equity securities	163,053	1,049	11,260	150,744
Derivative contracts	2,610,288	102,520	2,507,768	-
Other	223,606	-	205,136	18,470

Total trading assets	4,979,938	602,350	3,987,495	390,093


Securities available for sale
U.S. Treasury and federal agencies	7,914,111	5,176,525	2,737,586	-
U.S. states and political subdivisions	945,057	-	812,949	132,108
RMBS - agency	15,916,077	-	15,916,077	-
RMBS - private	407,228	-	-	407,228
Other debt securities	797,403	-	719,449	77,954
Common stock of The Coca-Cola Company	1,710,000	1,710,000	-	-
Other equity securities	787,166	182	82,187	704,797	³

Total securities available for sale	28,477,042	6,886,707	20,268,248	1,322,087

Loans held for sale	2,923,375	-	2,771,890	151,485
Loans	448,720	-	-	448,720
Other intangible assets ²	935,561	-	-	935,561
Other assets ¹	150,272	-	136,790	13,482

Liabilities
Brokered deposits	1,260,505	-	1,260,505	-
Trading liabilities	2,188,923	259,103	1,883,954	45,866
Long-term debt	3,585,892	-	3,585,892	-
Other liabilities ¹	125,239	-	77,105	48,134

¹ These amounts include IRLCs and derivative financial instruments entered into by the Mortgage of business to hedge its interest rate risk along with a derivative associated with the Company's sale of Visa shares during the quarter ended June 30, 2009.

² This amount includes MSRs carried at fair value.

³ Includes $343 million of FHLB of Cincinnati and FHLB of Atlanta stock stated at par value and $360 million of Federal Reserve Bank stock stated at par value.

The following tables present the difference between the aggregate fair value and the aggregate unpaid principal balance of trading assets, loans, LHFS, brokered deposits, and long-term debt instruments for which the FVO has been elected. For loans and LHFS for which the FVO has been elected, the tables also include 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.

Notes to Consolidated Financial Statements (Unaudited)-Continued


(Dollars in thousands)	Aggregate Fair Value June 30, 2010	Aggregate Unpaid Principal Balance under FVO June 30, 2010	Fair Value Over/(Under) Unpaid Principal

Trading assets	$912,945	$901,203	$11,742
Loans	384,509	426,854	(42,345)
Past due loans of 90 days or more	1,157	2,126	(969)
Nonaccrual loans	25,204	49,997	(24,793)
Loans held for sale	2,515,749	2,472,649	43,100
Past due loans of 90 days or more	2,796	3,887	(1,091)
Nonaccrual loans	5,925	24,758	(18,833)
Brokered deposits	1,203,858	1,243,423	(39,565)
Long-term debt	3,682,630	3,602,259	80,371

(Dollars in thousands)	Aggregate Fair Value December 31, 2009	Aggregate Unpaid Principal Balance under FVO December 31, 2009	Fair Value Over/(Under) Unpaid Principal

Trading assets	$286,544	$261,693	$24,851
Loans	397,764	453,751	(55,987)
Past due loans of 90 days or more	4,697	8,358	(3,661)
Nonaccrual loans	46,259	83,396	(37,137)
Loans held for sale	2,889,111	2,874,578	14,533
Past due loans of 90 days or more	3,288	4,929	(1,641)
Nonaccrual loans	30,976	52,019	(21,043)
Brokered deposits	1,260,505	1,319,901	(59,396)
Long-term debt	3,585,892	3,613,085	(27,193)

The following tables present the change in fair value during the three and six months ended June 30, 2010 and 2009 of financial instruments for which the FVO has been elected.

Fair Value Gain/(Loss) for the Three Months Ended
June 30, 2010, for Items Measured at Fair Value Pursuant
to Election of the Fair Value Option

Fair Value Gain/(Loss) for the Six Months Ended
June 30, 2010, for Items Measured at Fair Value Pursuant
to Election of the Fair Value Option

(Dollars in thousands)

Trading Account
Profits/(Losses) and
Commissions

Mortgage
Production
Related
Income/(Loss) ²

Mortgage
Servicing
Related
Income

Total
Changes in
Fair Values
Included in
Current-
Period
Earnings¹

Trading Account
Profits/(Losses) and
Commissions

Mortgage
Production
Related
Income/(Loss) ²

Mortgage
Servicing
Related
Income

Total
Changes in
Fair Values
Included in
Current-
Period
Earnings¹

Assets

Trading assets

($4,142)

($3,448)

Loans held for sale

(3,749)

200,155

196,406

6,962

292,348

299,310

Loans, net

(1,474)

7,841

6,367

(1,581)

7,479

5,898

Other intangible assets

2,591

(411,009)

(408,418)

6,455

(520,137)

(513,682)

Liabilities

Brokered deposits

22,717

(8,073)

Long-term debt

(39,524)

(125,076)

¹ Changes in fair value for the three and six months ended June 30, 2010, exclude accrued interest for the periods then ended. Interest income or interest expense on trading assets, loans, LHFS, brokered deposits and long-term debt that have been elected to be carried at fair value are recorded in interest income or interest expense in the Consolidated Statements of Income/(Loss) 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.

² For the three and six months ended June 30, 2010, income related to LHFS, includes $65 million and $128 million, respectively, related to MSRs recognized upon the sale of loans reported at fair value. For the three and six month ended June 30, 2010, income related to other intangible assets includes $3 million and $6 million, respectively, of MSRs recognized upon the sale of loans reported at LOCOM. These MSRs are included in the table since the Company elected to report MSRs recognized in 2009 using the fair value method. Previously, MSRs were reported under the amortized cost method.

Notes to Consolidated Financial Statements (Unaudited)-Continued


	Fair Value Gain/(Loss) for the Three Months Ended June 30, 2009, for Items Measured at Fair Value Pursuant to Election of the Fair Value Option				Fair Value Gain/(Loss) for the Six Months Ended June 30, 2009, for Items Measured at Fair Value Pursuant to Election of the Fair Value Option
(Dollars in thousands)	Trading Account Profits/(Losses) and Commissions	Mortgage Production Related Income ²	Mortgage Servicing Related Income	Total Changes in Fair Values Included in Current- Period Earnings¹	Trading Account Profits and Commissions	Mortgage Production Related Income/(Loss) ²	Mortgage Servicing Related Income	Total Changes in Fair Values Included in Current- Period Earnings¹

Assets
Trading assets	$3,403	$-	$-	$3,403	$3,248	$-	$-	$3,248
Loans held for sale	-	139,944	-	139,944