Edgar Filing: SUNTRUST BANKS INC

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 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 October 28, 2010, 499,959,163 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)
		Consolidated Statements of Income/(Loss)		1
		Consolidated Balance Sheets		3
		Consolidated Statements of Shareholders’ Equity		4
		Consolidated Statements of Cash Flows		5
		Notes to Consolidated Financial Statements		6

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		67
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		111
	Item 4.	Controls and Procedures		111

PART II OTHER INFORMATION

	Item 1.	Legal Proceedings		111
	Item 1A.	Risk Factors		111
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		113
	Item 3.	Defaults Upon Senior Securities		113
	Item 4.	(Removed and Reserved)		113
	Item 5.	Other Information		113
	Item 6.	Exhibits		114

SIGNATURES				115

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 nine months ended September 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.

BCBS — Basel Committee on Banking Supervision.

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.

CMBS — Commercial mortgage-backed securities.

Coke — The Coca-Cola Company.

Company — SunTrust Banks, Inc. and subsidiaries.

CP — Commercial paper.

CPP — Capital Purchase Program.

CRE — Commercial real estate.

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.

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.

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.

IRLC — Interest rate lock commitment.

IRS — Internal Revenue Service.

ISDA — International Swaps and Derivatives Association, Inc.

LCR — Liquidity Coverage Ratio.

LHFI — Loans held for investment.

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.

NSFR — Net Stable Funding Ratio.

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 & 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.

UTB — Unrecognized tax benefit.

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.

W&IM — Wealth and Investment Management.

iii

Item 1. FINANCIAL STATEMENTS (UNAUDITED)

SunTrust Banks, Inc.

Consolidated Statements of Income/(Loss)


	For the Three Months Ended September 30				For the Nine Months Ended September 30
(Dollars and shares in thousands, except per share data) (Unaudited)	2010		2009		2010		2009
Interest Income
Interest and fees on loans		$1,328,917		$1,370,318		$3,963,380		$4,180,248
Interest and fees on loans held for sale		35,451		57,286		101,774		191,524
Interest and dividends on securities available for sale
Taxable interest		188,866		177,712		532,231		527,573
Tax-exempt interest		7,092		9,660		24,526		30,377
Dividends¹		19,178		18,620		57,107		54,848
Interest on funds sold and securities purchased under agreements to resell		205		395		730		1,890
Interest on deposits in other banks		6		33		35		209
Trading account interest		23,284		23,498		67,295		93,462

Total interest income		1,602,999		1,657,522		4,747,078		5,080,131

Interest Expense
Interest on deposits		213,984		334,992		672,228		1,157,768
Interest on funds purchased and securities sold under agreements to repurchase		1,622		1,460		4,234		6,634
Interest on trading liabilities		8,345		4,658		22,621		15,735
Interest on other short-term borrowings		3,254		2,970		9,469		11,718
Interest on long-term debt		138,264		175,984		451,429		599,063

Total interest expense		365,469		520,064		1,159,981		1,790,918

Net interest income		1,237,530		1,137,458		3,587,097		3,289,213
Provision for credit losses		614,931		1,133,929		2,138,604		3,090,208

Net interest income after provision for credit losses		622,599		3,529		1,448,493		199,005

Noninterest Income
Service charges on deposit accounts		183,915		219,071		587,582		635,689
Card fees		95,867		82,370		277,107		238,535
Other charges and fees		136,881		133,433		399,360		385,553
Trust and investment management income		124,063		118,874		373,372		351,891
Retail investment services		52,104		51,361		147,470		163,474
Mortgage production related income		133,293		28,143		85,902		444,001
Mortgage servicing related income		131,869		60,193		289,917		283,203
Investment banking income		96,216		75,343		210,007		211,915
Trading account profits/(losses) and commissions		(21,568)		(86,866)		79,902		(9,593)
Gain from ownership in Visa		-		-		-		112,102
Other noninterest income		44,964		46,437		118,630		126,024
Net securities gains/(losses)²		69,341		46,692		127,855		25,170

Total noninterest income		1,046,945		775,051		2,697,104		2,967,964

Noninterest Expense
Employee compensation		596,881		541,347		1,728,799		1,683,597
Employee benefits		112,020		124,690		354,378		422,201
Outside processing and software		156,992		146,850		463,459		430,570
Net occupancy expense		91,606		90,445		272,674		265,082
Regulatory assessments		67,224		45,473		196,588		241,621
Credit and collection services		68,960		69,128		208,300		183,315
Other real estate expense		77,359		88,317		209,831		181,725
Equipment expense		44,859		41,616		127,738		128,948
Marketing and customer development		43,233		38,157		121,318		103,146
Operating losses		27,339		18,425		57,242		73,616
Amortization/impairment of goodwill/intangible assets		13,110		13,741		39,469		794,712
Mortgage reinsurance		6,795		10,000		24,975		104,620
Net loss on debt extinguishment		12,387		2,276		66,503		15,836
Other noninterest expense		180,190		198,382		490,973		479,853

Total noninterest expense		1,498,955		1,428,847		4,362,247		5,108,842

Income/(loss) before benefit for income taxes		170,589		(650,267)		(216,650)		(1,941,873)
Provision/(benefit) for income taxes		13,764		(336,056)		(230,162)		(635,790)

Net income/(loss) including income attributable to noncontrolling interest		156,825		(314,211)		13,512		(1,306,083)
Net income attributable to noncontrolling interest		3,771		2,730		8,888		9,485

Net income/(loss)		$153,054		($316,941)		$4,624		($1,315,568)


Net income/(loss) available to common shareholders		$83,771		($377,144)		($201,522)		($1,416,953)

SunTrust Banks, Inc.

Consolidated Statements of Income/(Loss) (continued)

For the Three Months Ended
September 30

For the Nine Months Ended
September 30

(Dollars and shares in thousands, except per share data) (Unaudited)

2010

2009

2010

2009

Net income/(loss) per average common share

Diluted

$0.17

($0.76)

($0.41)

($3.41)

Basic

0.17

(0.76)

(0.41)

(3.41)

Dividends declared per common share

0.01

0.01

0.03

0.21

Average common shares - diluted³

498,802

494,169

495,243

415,444

Average common shares - basic

495,501

494,169

495,243

415,444

¹Includes dividends on common stock of The Coca-Cola Company

$13,200

$12,300

$39,600

$36,900

² Net securities gains/(losses) for the three and nine months ended September 30, 2010 include OTTI losses of $0 million and $2 million, respectively. During the three and nine months ended September 30, 2010, there were no non-credit related unrealized OTTI losses recorded in OCI. Net securities gains/(losses) for the three and nine months ended September 30, 2009 include OTTI losses of $10 million and $16 million, respectively, consisting of $90 million and $96 million, respectively, of total unrealized losses, net of $80 million and $80 million, respectively, of non-credit related unrealized OTTI losses recorded in OCI.

³ For 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)	September 30 2010		December 31 2009
Assets
Cash and due from banks		$3,168,647		$6,456,406
Interest-bearing deposits in other banks		24,449		24,109
Funds sold and securities purchased under agreements to resell		962,104		516,656

Cash and cash equivalents		4,155,200		6,997,171
Trading assets		6,649,916		4,979,938
Securities available for sale		30,309,826		28,477,042
Loans held for sale¹(loans at fair value: $2,690,015 as of September 30, 2010; $2,923,375 as of December 31, 2009)		3,114,174		4,669,823
Loans²(loans at fair value: $471,834 as of September 30, 2010; $448,720 as of December 31, 2009)		115,054,548		113,674,844
Allowance for loan and lease losses		(3,086,000)		(3,120,000)

Net loans		111,968,548		110,554,844
Premises and equipment		1,567,629		1,551,794
Goodwill		6,323,028		6,319,078
Other intangible assets (MSRs at fair value: $1,071,904 as of September 30, 2010; $935,561 as of December 31, 2009)		1,204,352		1,711,299
Customers’ acceptance liability		6,173		6,264
Other real estate owned		645,359		619,621
Other assets		8,758,485		8,277,861

Total assets		$174,702,690		$174,164,735


Liabilities and Shareholders’ Equity
Noninterest-bearing consumer and commercial deposits		$26,707,192		$24,244,041
Interest-bearing consumer and commercial deposits		90,787,072		92,059,411

Total consumer and commercial deposits		117,494,264		116,303,452
Brokered deposits (CDs at fair value: $1,263,801 as of September 30, 2010; $1,260,505 as of December 31, 2009)		2,409,055		4,231,530
Foreign deposits		440,859		1,328,584

Total deposits		120,344,178		121,863,566
Funds purchased		1,076,227		1,432,581
Securities sold under agreements to repurchase		2,429,346		1,870,510
Other short-term borrowings		4,894,410		2,062,277
Long-term debt³(debt at fair value: $2,905,706 as of September 30, 2010; $3,585,892 as of December 31, 2009)		15,207,837		17,489,516
Acceptances outstanding		6,173		6,264
Trading liabilities		2,701,742		2,188,923
Other liabilities		4,605,203		4,720,243

Total liabilities		151,265,116		151,633,880


Preferred stock		4,935,507		4,917,312
Common stock, $1.00 par value		514,667		514,667
Additional paid in capital		8,442,751		8,521,042
Retained earnings		8,431,253		8,562,807
Treasury stock, at cost, and other		(951,529)		(1,055,136)
Accumulated other comprehensive income, net of tax		2,064,925		1,070,163

Total shareholders’ equity		23,437,574		22,530,855

Total liabilities and shareholders’ equity		$174,702,690		$174,164,735


Common shares outstanding		499,954,653		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		14,711,942		15,509,737

¹Includes loans held for sale of consolidated VIEs		$316,563		-

²Includes loans of consolidated VIEs		2,617,637		-

³Includes debt of consolidated VIEs		773,459		-

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		-		-		-		-		(1,315,568)		-		-		(1,315,568)
Other comprehensive income:
Change in unrealized gains (losses) on securities, net of taxes		-		-		-		-		-		-		321,991		321,991
Change in unrealized gains (losses) on derivatives, net of taxes		-		-		-		-		-		-		(296,469)		(296,469)
Change related to employee benefit plans		-		-		-		-		-		-		153,219		153,219

Total comprehensive loss																(1,136,827)
Change in noncontrolling interest		-		-		-		-		-		(1,648)		-		(1,648)
Common stock dividends, $0.21 per share		-		-		-		-		(77,632)		-		-		(77,632)
Series A preferred stock dividends, $3,044 per share		-		-		-		-		(12,398)		-		-		(12,398)
U.S. Treasury preferred stock dividends, $3,754 per share		-		-		-		-		(182,062)		-		-		(182,062)
Accretion of discount associated with U.S. Treasury preferred stock		17,202		-		-		-		(17,202)		-		-		-
Issuance of common stock in connection with SCAP capital plan		-		141,868		141,868		1,687,867		-		-		-		1,829,735
Extinguishment of forward stock purchase contract		-		-		-		173,653		-		-		-		173,653
Repurchase of preferred stock		(327,489)		-		-		5,047		94,318		-		-		(228,124)
Exercise of stock options and stock compensation expense		-		-		-		6,045		-		-		-		6,045
Restricted stock activity		-		1,900		-		(204,984)		-		174,854		-		(30,130)
Amortization of restricted stock compensation		-		-		-		-		-		51,330		-		51,330
Issuance of stock for employee benefit plans and other		-		864		-		(51,739)		(5)		67,281		-		15,537
Adoption of OTTI guidance		-		-		-		-		7,715		-		(7,715)		-

Balance, September 30, 2009		$4,911,416		499,147		$514,667		$8,520,533		$8,886,150		($1,076,633)		$1,152,151		$22,908,284


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 income		-		-		-		-		4,624		-		-		4,624
Other comprehensive income:
Change in unrealized gains (losses) on securities, net of taxes		-		-		-		-		-		-		471,863		471,863
Change in unrealized gains (losses) on derivatives, net of taxes		-		-		-		-		-		-		437,932		437,932
Change related to employee benefit plans		-		-		-		-		-		-		84,967		84,967

Total comprehensive income																999,386
Change in noncontrolling interest		-		-		-		-		-		(1,943)		-		(1,943)
Common stock dividends, $0.03 per share		-		-		-		-		(14,983)		-		-		(14,983)
Series A preferred stock dividends, $3,044 per share		-		-		-		-		(5,252)		-		-		(5,252)
U.S. Treasury preferred stock dividends, $3,750 per share		-		-		-		-		(181,875)		-		-		(181,875)
Accretion of discount associated with U.S. Treasury preferred stock		18,195		-		-		-		(18,195)		-		-		-
Stock compensation expense		-		-		-		17,527		-		-		-		17,527
Restricted stock activity		-		381		-		(72,882)		-		42,969		-		(29,913)
Amortization of restricted stock compensation		-		-		-		-		-		31,410		-		31,410
Issuance of stock for employee benefit plans and other		-		417		-		(22,936)		1,976		31,171		-		10,211
Fair value election of MSRs		-		-		-		-		88,995		-		-		88,995
Adoption of VIE consolidation guidance		-		-		-		-		(6,844)		-		-		(6,844)

Balance, September 30, 2010		$4,935,507		499,955		$514,667		$8,442,751		$8,431,253		($951,529)		$2,064,925		$23,437,574

1	Balance at September 30, 2010 includes ($1,014,029) for treasury stock, ($43,753) for compensation element of restricted stock, and $106,253 for noncontrolling interest.

Balance at September 30, 2009 includes ($1,110,960) for treasury stock, ($76,721) for compensation element of restricted stock, and $111,048 for noncontrolling interest.

See Notes to Consolidated Financial Statements (unaudited).

SunTrust Banks, Inc.

Consolidated Statements of Cash Flows


	Nine Months Ended September 30
(Dollars in thousands) (Unaudited)	2010		2009
Cash Flows from Operating Activities:
Net income/(loss) including income attributable to noncontrolling interest		$13,512		($1,306,083)
Adjustments to reconcile net income/(loss) to net cash provided by operating activities:
Gain from ownership in Visa		-		(112,102)
Depreciation, amortization and accretion		600,060		722,118
Goodwill impairment		-		751,156
MSRs impairment recovery		-		(188,699)
Origination of MSRs		(197,892)		(585,516)
Provisions for credit losses and foreclosed property		2,276,707		3,244,418
Amortization of restricted stock compensation		31,410		51,330
Stock option compensation		17,527		6,045
Excess tax benefits from stock-based compensation		49		(369)
Net loss on extinguishment of debt		66,503		15,836
Net securities gains		(127,855)		(25,170)
Net (gain)/loss on sale of assets		2,005		(40,157)
Net decrease/(increase) in loans held for sale		853,944		(809,791)
Contributions to retirement plans		(6,333)		(20,476)
Net (increase)/decrease in other assets		(184,554)		968,206
Net increase/(decrease) in other liabilities		501,301		(955,414)

Net cash provided by operating activities		3,846,384		1,715,332


Cash Flows from Investing Activities:
Proceeds from maturities, calls and paydowns of securities available for sale		4,040,012		2,674,985
Proceeds from sales of securities available for sale		14,101,854		10,210,583
Purchases of securities available for sale		(19,779,447)		(20,167,736)
Proceeds from maturities, calls and paydowns of trading securities		87,701		80,496
Proceeds from sales of trading securities		92,634		2,113,466
Purchases of trading securities		-		(85,965)
Net (increase)/decrease in loans, including purchases of loans		(2,661,494)		7,076,102
Proceeds from sales of loans		696,437		524,589
Capital expenditures		(154,547)		(160,674)
Proceeds from sale/redemption of Visa shares		-		112,102
Contingent consideration and other payments related to acquisitions		(4,233)		(17,145)
Proceeds from the sale of other assets		567,569		412,425

Net cash (used in)/provided by investing activities		(3,013,514)		2,773,228


Cash Flows from Financing Activities:
Net (decrease)/increase in total deposits		(1,517,577)		5,553,603
Assumption of deposits, net		-		445,482
Net increase/(decrease) in funds purchased, securities sold under agreements to repurchase, and other short-term borrowings		1,011,312		(4,563,095)
Proceeds from the issuance of long-term debt		500,000		574,560
Repayment of long-term debt		(3,466,417)		(9,319,440)
Excess tax benefits from stock-based compensation		(49)		369
Proceeds from the issuance of common stock		-		1,829,735
Repurchase of preferred stock		-		(228,124)
Common and preferred dividends paid		(202,110)		(261,315)

Net cash used in financing activities		(3,674,841)		(5,968,225)

Net decrease in cash and cash equivalents		(2,841,971)		(1,479,665)
Cash and cash equivalents at beginning of period		6,997,171		6,637,402

Cash and cash equivalents at end of period		$4,155,200		$5,157,737


Supplemental Disclosures:
Loans transferred from loans held for sale to loans		$111,444		$301,308
Loans transferred from loans to loans held for sale		295,706		-
Loans transferred from loans and loans held for sale to other real estate owned		870,484		602,651
Extinguishment of forward stock purchase contract		-		173,653
Gain on repurchase of Series A preferred stock		-		94,318
Total assets of newly consolidated VIEs		2,540,699		-

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 LHFI. 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 an 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 is ultimately paid in full.

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 externally provided 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 CRE 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 date 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 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 through the third quarter of 2009, the provision associated with changes in the unfunded lending commitment reserve is reported in the Consolidated Statements of Income/(Loss) in noninterest expense. 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 guidance requires an entity to reassess whether it is the primary beneficiary at least quarterly.

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 ALLL, 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.

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

Notes to Consolidated Financial Statements (Unaudited) - Continued

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.

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 will include the required disclosures in its Annual Report.

Notes to Consolidated Financial Statements (Unaudited) - Continued

Note 2 – Trading Assets and Liabilities

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


(Dollars in thousands)	September 30 2010		December 31 2009
Trading Assets
U.S. Treasury securities		$357,220		$498,781
Federal agency securities		443,784		474,188
U.S. states and political subdivisions		93,051		58,520
RMBS - agency		272,955		94,164
RMBS - private		3,110		6,463
CDO securities		122,715		174,942
ABS		41,627		50,775
Corporate and other debt securities		479,773		465,637
Commercial paper		39,316		639
Equity securities		216,994		256,096
Derivative contracts		3,531,498		2,610,288
Trading loans		1,047,873		289,445

Total trading assets		$6,649,916		$4,979,938


Trading Liabilities
U.S. Treasury securities		$444,918		$189,461
Federal agency securities		4,670		3,432
Corporate and other debt securities		361,871		144,142
Equity securities		150		7,841
Derivative contracts		1,890,133		1,844,047

Total trading liabilities		$2,701,742		$2,188,923

Notes to Consolidated Financial Statements (Unaudited) - Continued

Note 3 – Securities Available For Sale

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

September 30, 2010

(Dollars in thousands)

Amortized
Cost

Unrealized
Gains

Unrealized
Losses

Fair
Value

U.S. Treasury securities

$6,107,012

$272,727

$6,379,739

Federal agency securities

1,831,891

51,686

1,883,577

U.S. states and political subdivisions

657,740

28,408

6,212

679,936

RMBS - agency

16,514,006

494,019

589

17,007,436

RMBS - private

405,090

2,825

43,443

364,472

ABS

883,259

16,722

7,488

892,493

Corporate and other debt securities

464,868

24,450

1,074

488,244

Coke common stock

1,755,531

1,755,600

Other equity securities¹

857,370

959

858,329

Total securities AFS

$27,721,305

$2,647,327

$58,806

$30,309,826

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 and other debt securities

505,185

9,989

3,373

511,801

Coke common stock

1,709,931

1,710,000

Other equity securities¹

786,248

918

787,166

Total securities AFS

$26,645,094

$2,047,533

$215,585

$28,477,042

1At September 30, 2010, other equity securities included $319 million in FHLB of Cincinnati and FHLB of Atlanta stock (par value), $361 million in Federal Reserve Bank stock (par value), and $177 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 $5.5 billion as of September 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 $983 million of certain trading assets and cash equivalents to secure $956 million of repurchase agreements as of September 30, 2010. Additionally, as of September 30, 2010, the Company had pledged $48.7 billion of net eligible loan collateral to support $29.6 billion in available borrowing capacity at either the Federal Reserve discount window or the FHLB of Atlanta. Of the available borrowing capacity, $8.4 billion was outstanding as of September 30, 2010.

The amortized cost and fair value of investments in debt securities at September 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.

Notes to Consolidated Financial Statements (Unaudited) - Continued

(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

$11,208

$4,039,306

$2,056,498

$6,107,012

Federal agency securities

64,078

1,487,533

263,020

17,260

1,831,891

U.S. states and political subdivisions

160,923

336,374

72,352

88,091

657,740

RMBS - agency

369,895

12,201,108

3,665,346

277,657

16,514,006

RMBS - private

24,391

282,100

80,337

18,262

405,090

ABS

373,811

504,153

5,295

883,259

Corporate and other debt securities

8,683

307,825

122,885

25,475

464,868

Total debt securities

$1,012,989

$19,158,399

$6,265,733

$426,745

$26,863,866

Fair Value

U.S. Treasury securities

$11,298

$4,238,535

$2,129,906

$6,379,739

Federal agency securities

65,349

1,519,944

280,075

18,209

1,883,577

U.S. states and political subdivisions

164,758

355,850

77,156

82,172

679,936

RMBS - agency

382,423

12,563,062

3,772,731

289,220

17,007,436

RMBS - private

21,755

250,883

75,330

16,504

364,472

ABS

379,409

509,109

3,975

892,493

Corporate and other debt securities

8,793

315,512

138,952

24,987

488,244

Total debt securities

$1,033,785

$19,752,895

$6,478,125

$431,092

$27,695,897

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

Three Months Ended

Nine Months Ended

(Dollars in thousands)

September 30, 2010

September 30, 2009

September 30, 2010

September 30, 2009

Gross realized gains

$69,360

$71,395

$146,796

$87,559

Gross realized losses

(19)

(15,048)

(17,081)

(46,273)

OTTI

(9,655)

(1,860)

(16,116)

Net securities gains

$69,341

$46,692

$127,855

$25,170

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

(Dollars in thousands)

September 30, 2010

Less than twelve months

Twelve months or longer

Total

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

Temporarily impaired securities

U.S. Treasury securities

Federal agency securities

U.S. states and political subdivisions

1,829

81,514

6,207

83,343

6,212

RMBS - agency

405,039

589

405,039

589

RMBS - private

18,692

113

18,132

3,344

36,824

3,457

ABS

18,172

6,057

18,172

6,057

Corporate and other debt securities

2,630

1,074

2,630

1,074

Total temporarily impaired securities

425,560

707

120,448

16,682

546,008

17,389

Other-than-temporarily impaired securities¹

RMBS - private

300,112

39,979

300,130

39,986

ABS

2,078

1,431

2,078

1,431

Total other-than-temporarily impaired securities

2,096

1,438

300,112

39,979

302,208

41,417

Total impaired securities

$427,656

$2,145

$420,560

$56,661

$848,216

$58,806

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 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 securities¹
RMBS - private		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

¹ Includes OTTI securities for which credit losses have been recorded in earnings in current or prior periods, regardless of whether there is current OTTI loss remaining in OCI.

On September 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 September 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 two 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 securities AFS as follows:


	Three Months Ended				Nine Months Ended
(Dollars in thousands)	September 30, 2010		September 30, 2009		September 30, 2010		September 30, 2009
Total OTTI losses^1,3		$-		$89,702		$1,860		$96,163
Portion of losses recognized in OCI (before taxes)²		-		80,047		-		80,047

Net impairment losses recognized in earnings		$-		$9,655		$1,860		$16,116

¹ There were no OTTI losses recorded for the three months ended September 30, 2010. OTTI losses for the nine months ended September 30, 2010 all related to private RMBS. OTTI losses of $90 million for the three months ended September 30, 2009 were all related to private RMBS. OTTI losses of $96 million for the nine months ended September 30, 2009 were comprised of $96 million related to private RMBS and an immaterial amount related to other securities.

² OTTI losses recognized in OCI of $80 million for the three and nine months ended September 30, 2009 all related to private RMBS.

³ For initial OTTI, amount represents the excess of the amortized cost over the fair value of AFS debt securities. For subsequent impairments of the same security, amount represents additional declines in the fair value subsequent to the previously recorded OTTI, if applicable, until such time the security is no longer in an unrealized loss position.

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

Notes to Consolidated Financial Statements (Unaudited) - Continued


(Dollars in thousands)
Balance as of January 1, 2010			$21,602
Reductions:
Increases in expected cash flows recognized over the remaining life of the securities			(771)

Balance as of September 30, 2010¹			$20,831


Balance as of April 1, 2009, effective date			$7,646
Additions:
OTTI credit losses on securities not previously impaired			12,638
OTTI credit losses on previously impaired securities			1,822

Balance as of September 30, 2009			$22,106

¹ During the nine months ended September 30, 2010, the Company recognized $1.9 million of OTTI through earnings on debt securities in which no portion of the OTTI loss remained in OCI at any time during the period. OTTI related to these securities are excluded from these amounts.

While all AFS securities are reviewed quarterly for OTTI, based on the analysis of underlying cash flows, there was no credit impairment recorded on securities during the three months ended September 30, 2010. The securities that gave rise to the OTTI recognized during the nine months ended September 30, 2010 consisted of private RMBS with a fair market value of $1 million at September 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.

Note 4 – Allowance for Credit Losses

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

Three Months Ended
September 30

Nine Months Ended
September 30

(Dollars in thousands)

2010

2009

2010

2009

Balance at beginning of period

$3,215,901

$2,924,600

$3,234,900

$2,378,507

Allowance recorded upon VIE consolidation

300

976

Provision for loan losses

619,831

1,133,929

2,198,504

3,090,208

Provision for unfunded commitments¹

(4,900)

29,100

(59,900)

30,189

Loan charge-offs

(725,325)

(1,045,894)

(2,355,395)

(2,528,368)

Loan recoveries

35,194

39,965

121,916

111,164

Balance at end of period

$3,141,001

$3,081,700

$3,141,001

$3,081,700

Components:

ALLL

$3,086,000

$3,024,000

Unfunded commitments reserve²

55,001

57,700

Allowance for credit losses

$3,141,001

$3,081,700

¹ Beginning 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).

² The unfunded commitments reserve is separately recorded in other liabilities in the Consolidated Balance Sheets.

Notes to Consolidated Financial Statements (Unaudited) - Continued

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, CRE, Household Lending, CIB, W&IM, 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 certain reporting units as follows:

—

The Retail reporting unit was renamed Branch Banking; however, the composition of the reporting unit did not change. Branch Banking is a component of the Retail Banking reportable segment.

—

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

As of September 30, 2010, the Company’s reporting units with goodwill balances were Branch Banking, Diversified Commercial Banking, CIB, and W&IM. The Company completed its 2010 annual impairment review of goodwill as of September 30, 2010. The estimated fair value of each reporting unit as of September 30, 2010 exceeded its respective carrying value; therefore, the Company determined there was no impairment of goodwill.

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 W&IM reporting units exceeded their respective carrying values as of March 31, 2009; however, the fair value of the Household Lending, CIB, CRE (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 CIB 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, CRE, 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 NPLs. 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 nine months ended September 30 are as follows:


(Dollars in thousands)	Retail and Commercial		Wholesale		CIB		Household Lending		Mortgage		W&IM		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 Advisors, Inc.		-		-		-		-		-		5,012		5,012
Purchase price adjustments		474		-		-		-		-		3,827		4,301

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

Notes to Consolidated Financial Statements (Unaudited) - Continued

(Dollars in thousands)

Retail and
Commercial

Retail
Banking

Diversified
Commercial
Banking

CIB

W&IM

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

Purchase price adjustments

485

Balance, September 30, 2010

$4,854,582

$927,520

$180,008

$360,918

$6,323,028

Changes in the carrying amounts of other intangible assets for nine months ended September 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		(32,361)		(171,895)		-		(11,323)		(215,579)
MSRs originated		-		-		585,516		-		585,516
MSRs impairment recovery		-		188,699		-		-		188,699
Changes in fair value
Due to changes in inputs or assumptions ¹		-		-		70,148		-		70,148
Other changes in fair value ²		-		-		(60,226)		-		(60,226)
Other		-		-		-		151		151

Balance, September 30, 2009		$112,950		$639,474		$783,242		$68,470		$1,604,136


(Dollars in thousands)	Core Deposit Intangibles		MSRs Amortized Cost		MSRs Fair Value		Other		Total
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		(29,246)		-		-		(10,223)		(39,469)
MSRs originated		-		-		197,892		-		197,892
Changes in fair value
Due to fair value election		-		-		144,634		-		144,634
Due to changes in inputs or assumptions ¹		-		-		(642,808)		-		(642,808)
Other changes in fair value ²		-		-		(167,196)		-		(167,196)

Balance, September 30, 2010		$74,994		$-		$1,071,904		$57,454		$1,204,352

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

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

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

Notes to Consolidated Financial Statements (Unaudited) - Continued

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 $220 million and $104 million for the three months ended September 30, 2010 and 2009, respectively, and $443 million and $532 million for the nine months ended September 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.

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 September 30, 2010 and December 31, 2009, the fair value of securities received totaled $210 million and $217 million, respectively. At September 30, 2010, securities with a fair value of $191 million were valued using a third party pricing service. The remaining $19 million in 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 September 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 nine months ended September 30, 2010 that would change the Company’s previous conclusion that it is not the primary beneficiary of any of these securitization entities. Total assets as of September 30, 2010 and December 31, 2009 of the unconsolidated trusts in which the Company has a VI are $704 million and $780 million, respectively.

Notes to Consolidated Financial Statements (Unaudited) - Continued

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 September 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 nine months ended September 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 nine months ended September 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 expected that it would no longer receive cash flows on the interest until the senior participation interest had been repaid in full. At December 31, 2009, the carrying value of the Company’s investment in the residual was zero; however, during the first nine months of 2010, the Company observed an improvement in the credit quality of the underlying loans as well as a continued build up of over collateralization in the transaction as all cash flows have been directed to repay the senior participation interest. As a result, during the three months ended September 30, 2010, the Company marked up the value of the residual interest to its estimated market value of $9 million at September 30, 2010. The key assumptions and inputs used by the Company in valuing this retained interest at September 30, 2010, include the expected credit losses of 2%, prepayment speed of 10% and annual discount rate of 30%. An analysis of the impact on the fair value of two adverse changes from the key assumptions was performed; the resulting amounts were insignificant for the expected credit loss and prepayment speed assumptions. For a 10% and 20% increase in the annual discount rate, the analysis resulted in fair value declines of $1 million and $2 million, respectively.

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. Upon funding the loan, the related contingent loss reserve was reclassified and prospectively evaluated as part of the ALLL. 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 nine months ended September 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.

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 LHFS 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

Notes to Consolidated Financial Statements (Unaudited) - Continued

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 nine months ended September 30, 2009, the Company recognized losses of less than $10 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 nine 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 during the nine months ended September 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 for the three months ended September 30, 2010 and 2009, and $9 million and $7 million for the nine months ended September 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 $2.1 billion and $2.0 billion, respectively, at September 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 nine months ended September 30, 2010 that would change the Company’s previous conclusion that it is not the primary beneficiary of any of these securitization entities.

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 related residual interest in the SPE. The Company, as master servicer of the loans in the SPE, has agreed to service each loan consistent with the guidelines determined by the applicable government agencies in order to maintain the government guarantee. The Company and the SPE have entered into an agreement to have the loans subserviced by an unrelated third party.

During the three months ended September 30, 2010, the Company determined that a securitization of government-guaranteed student loans (the “Student Loan entity”) should be consolidated as prescribed by ASU 2009-17. Accordingly, the Company consolidated the Student Loan entity at its unpaid principal amount as of September 30, 2010, resulting in incremental total assets and total liabilities of $0.5 billion, respectively, and an immaterial impact on shareholders’ equity. The consolidation of the Student Loan entity had no impact on the Company’s earnings or cash flows that results from its involvement with this VIE. The primary balance sheet impacts from consolidating the Student Loan entity were increases in LHFI, the related ALLL, and long-term debt. In addition, the Company’s ownership of the residual interest in the SPE, previously classified in trading assets, was eliminated upon consolidation. The impact on certain of the Company’s regulatory capital ratios as a result of consolidating the Student Loan entity was not significant. The Company will account for the assets and liabilities of the Student Loan entity in subsequent periods on a cost basis.

Payments from the assets in the SPE must first be used to settle the obligations of the SPE, with any remaining payments remitted to the Company as the owner of the residual interest. To the extent that losses occur on the SPE’s assets, the SPE has recourse to the federal government as the guarantor up to a maximum guarantee amount of 98%. Losses in excess of the government guarantee reduce the amount of available cash payable to the owner of the residual interest. To the extent that losses result from a breach of the master servicer’s servicing responsibilities, the SPE has recourse to the Company; the SPE may require the Company to repurchase the loan from the SPE at par value. If the breach was caused by the subservicer, the Company has recourse to seek reimbursement from the subservicer up to the guaranteed amount. The Company’s maximum exposure to loss related to the SPE is represented by the potential losses resulting from a breach of servicing responsibilities. To date, all loss claims filed with the guarantor that have been denied due to servicing errors have either been cured or reimbursement has been provided to the Company by the subservicer. The Company is not obligated to provide any noncontractual support to this entity, nor has it to date provided any such support to this entity.

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

Notes to Consolidated Financial Statements (Unaudited) - Continued

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 September 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 12% over LIBOR. For both periods, analyses of the impact on the fair values of two adverse changes from the key assumption were performed. At September 30, 2010 and December 31, 2009, a 20% adverse change in the assumed discount rate resulted in declines of $6 million and $5 million, respectively, 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 September 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 (ii) the remaining senior interests expected to be purchased in conjunction with the ARS issue, which had a total fair value of $2 million as of September 30, 2010. The total assets of the trust preferred CDO entities in which the Company has remaining exposure to loss was $1.3 billion at both September 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 nine months ended September 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 nine months ended September 30:

Three Months Ended September 30, 2010

(Dollars in thousands)

Residential
Mortgage
Loans

Commercial
and Corporate
Loans

Student
Loans

CDO
Securities

Total

Cash flows on interests held

$14,435

$1,201

$4,533

$433

$20,602

Servicing or management fees

987

2,740

182

3,909

Three Months Ended September 30, 2009

(Dollars in thousands)

Residential
Mortgage
Loans

Commercial
and Corporate
Loans

Student
Loans

CDO
Securities

Total

Cash flows on interests held

$23,400

$498

$1,755

$706

$26,359

Servicing or management fees

1,182

3,556

165

4,903

Nine Months Ended September 30, 2010

(Dollars in thousands)

Residential
Mortgage Loans

Commercial
and Corporate
Loans

Student
Loans

CDO
Securities

Total

Cash flows on interests held

$42,130

$2,961

$7,934

$1,295

$54,320

Servicing or management fees

3,080

9,590

557

13,227

Nine Months Ended September 30, 2009

(Dollars in thousands)

Residential
Mortgage Loans

Commercial
and Corporate
Loans

Student
Loans

CDO
Securities

Total

Cash flows on interests held

$75,789

$1,200

$5,470

$2,349

$84,808

Servicing or management fees

3,784

8,404

522

12,710

Portfolio balances and delinquency balances based on 90 days or more past due (including accruing and nonaccrual loans) as of September 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 nine months ended September 30, 2010 and 2009 are as follows:

Notes to Consolidated Financial Statements (Unaudited) - Continued


	Principal Balance				Past Due				Net Charge-offs
									For the Three Months Ended				For the Nine Months Ended
	September 30,		December 31,		September 30,		December 31,		September 30,				September 30,
(Dollars in millions)	2010		2009		2010		2009		2010		2009		2010		2009
Type of loan:
Commercial		$32,847		$32,494		$349		$508		$64		$196		$247		$477
Residential mortgage and home equity		47,295		46,743		3,157		4,065		432		566		1,436		1,418
Commercial real estate and construction		19,253		21,721		1,810		1,902		157		178		414		346
Consumer		14,657		11,649		624		428		19		43		69		114
Credit card		1,003		1,068		13		-		18		23		67		62

Total loan portfolio		115,055		113,675		5,953		6,903		690		1,006		2,233		2,417
Managed securitized loans
Commercial		2,486		3,460		44		64		-		(4)		22		16
Residential mortgage		1,311		1,482		110		123		12		10		34		34
Other		-		506		-		25		-		-		-		-

Total managed loans		$118,852		$119,123		$6,107		$7,115		$702		$1,012		$2,289		$2,467

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 $127.3 billion and $127.8 billion at September 30, 2010 and December 31, 2009, respectively. Related servicing fees received by the Company were $94 million and $87 million for the three months ended September 30, 2010 and 2009, respectively, and $280 million and $239 million for the nine months ended September 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 LOCOM. 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 $99 million and $93 million for the three months ended September 30, 2010 and 2009, respectively, and $298 million and $256 million for the nine months ended September 30, 2010 and 2009, respectively. These amounts are reported in mortgage servicing related income in the Consolidated Statements of Income/(Loss).

As of September 30, 2010 and December 31, 2009, the total unpaid principal balance of mortgage loans serviced was $176.6 billion and $178.9 billion, respectively. Included in these amounts were $143.6 billion and $146.7 billion as of September 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 September 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:

Notes to Consolidated Financial Statements (Unaudited) - Continued


	September 30, 2010			December 31, 2009
(Dollars in millions)	Fair Value			Fair Value			LOCOM
Fair value of retained MSRs		$1,072			$936			$749

Prepayment rate assumption (annual)		22	%		10	%		17	%
Decline in fair value from 10% adverse change		$52			$30			$30
Decline in fair value from 20% adverse change		99			58			58
Discount rate (annual)		10	%		10	%		12	%
Decline in fair value from 10% adverse change		$38			$39			$27
Decline in fair value from 20% adverse change		74			75			51
Weighted-average life (in years)		4.0			7.5			4.8
Weighted-average coupon		5.5	%		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. In addition, the sensitivities above do not include the effect of hedging activity undertaken by the Company to offset changes in the fair value of MSRs. See Note 10, “Derivative Financial Instruments,” for further information regarding these hedging transactions.

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 nine months ended September 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 $20 million and $16 million for the three months ended September 30, 2010 and 2009, respectively, and $50 million and $49 million for the nine months ended September 30, 2010 and 2009, respectively.

At September 30, 2010, the Company’s Consolidated Balance Sheets reflected $2.2 billion of secured loans held by Three Pillars, which are included within commercial loans, and $287 million of CP issued by Three Pillars, excluding 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.

Notes to Consolidated Financial Statements (Unaudited) - Continued

Funding commitments extended by Three Pillars to its customers totaled $4.3 billion at September 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 42% and 16%, respectively, of the outstanding commitments, as of September 30, 2010, compared to 50% and 18%, respectively, as of December 31, 2009. Total assets supporting outstanding commitments have a weighted average life of 2.27 years and 1.69 years at September 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 nine months ended September 30, 2010 and 2009, there were no write-downs of Three Pillars’ assets.

At September 30, 2010, Three Pillars’ outstanding CP used to fund its assets had remaining weighted average lives of 27 days and maturities through November 8, 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 $4.4 billion as of September 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 September 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 nine months ended September 30, 2010 or 2009.

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 nine months ended September 30, 2010, the Company began to execute new TRS transactions.

Notes to Consolidated Financial Statements (Unaudited) - Continued

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 September 30, 2010, the Company had $752 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 $752 million at September 30, 2010 and the Company had entered into mirror TRS contracts with its third parties with the same outstanding notional amounts. At September 30, 2010, the fair values of these TRS derivative assets and derivative liabilities were $18 million and $16 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 nine months ended September 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 September 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 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 September 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.

Notes to Consolidated Financial Statements (Unaudited) - Continued

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 protects 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 September 30, 2010 and December 31, 2009. These limited partner interests had carrying values of $207 million and $218 million at September 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 $451 million and $468 million at September 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 $230 million and $219 million of loans issued by the Company to the limited partnerships at September 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 interests 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 September 30, 2010 and December 31, 2009, total assets, which consist primarily of fixed assets and cash, attributable to the consolidated, non-VIE partnerships were $406 million and $425 million, respectively, and total liabilities, excluding intercompany liabilities, primarily representing third-party borrowings, were $115 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 nine months ended September 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 September 30, 2010 and December 31, 2009 were $2.2 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 significant support, contractual or otherwise, to the Funds during the nine months ended September 30, 2010 and 2009.

Note 7 – Net Income/(Loss) Per Share

Net income/(loss) is the same in the calculation of basic and diluted income/(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 September 30, 2010 and 2009, respectively, were excluded from the computations of diluted income/(loss) per average common share because they would

Notes to Consolidated Financial Statements (Unaudited) - Continued

have been antidilutive in periods resulting in a loss per share. In the three months ended September 30, 2010, dilutive equivalent shares were included in the EPS calculation. A reconciliation of the difference between average basic common shares outstanding and average diluted common shares outstanding for the three and nine months ended September 30, 2010 and 2009 is included below. For EPS 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 antidilutive. Additionally, included below is a reconciliation of net income/(loss) to net income/(loss) available to common shareholders.


	Three Months Ended September 30				Nine Months Ended September 30
(In thousands, except per share data)	2010		2009		2010		2009
Net income/(loss)		$153,054		($316,941)		$4,624		($1,315,568)
Series A preferred dividends		(1,764)		(1,763)		(5,252)		(12,398)
U.S. Treasury preferred dividends and accretion of discount		(66,775)		(66,439)		(200,070)		(199,264)
Gain on repurchase of Series A preferred stock		-		4,893		-		94,318
Dividends and undistributed earnings allocated to unvested shares		(744)		3,106		(824)		15,959

Net income/(loss) available to common shareholders		$83,771		($377,144)		($201,522)		($1,416,953)


Average basic common shares		495,501		494,169		495,243		415,444
Effect of dilutive securities:
Stock options		889		686		926		324
Restricted stock		2,412		2,215		2,346		1,297

Average diluted common shares		498,802		497,070		498,515		417,065


Net income/(loss) per average common share - diluted		$0.17		($0.76)		($0.41)		($3.41)

Net income/(loss) per average common share - basic		$0.17		($0.76)		($0.41)		($3.41)

Note 8 - Income Taxes

The provision for income taxes was an expense of $14 million and a benefit of $336 million for the three months ended September 30, 2010 and 2009, respectively, representing an effective tax rate of 8% and (51)% during those periods. The provision for income taxes was a benefit of $230 million and $636 million for the nine months ended September 30, 2010 and 2009, respectively, representing effective tax rates of (102)% and (33)% during those periods. The Company calculated income taxes for the three and nine months ended September 30, 2010 and 2009 based on actual year-to-date results.

As of September 30, 2010, the Company’s gross cumulative UTBs amounted to $107 million, of which $74 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 $34 million and $39 million for interest related to its UTBs as of September 30, 2010 and December 31, 2009, respectively. Interest related to UTBs was an expense of approximately $2 million and income of less than $1 million for the three and nine months ended September 30, 2010, compared to income of approximately $27 million and approximately $15 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 U.S. federal jurisdiction and in various state jurisdictions. As of September 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.

Note 9 - Employee Benefit Plans

The Company sponsors various short-term incentive 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 during 2010 and 2009 and prior years.

The accrued liability and expense related to these deferred cash grants were as follows:

Three Months Ended
September 30

Nine Months Ended
September 30

(in thousands)

2010

2009

2010

2009

LTI deferred cash plan - expense

$7,856

$5,157

$21,850

$14,353

As of

(in thousands)

September 30
2010

December 31
2009

LTI deferred cash plan - accrual

$49,244

$27,906

Notes to Consolidated Financial Statements (Unaudited) - Continued

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 September 30, 2010, the accrual related to salary shares was $7 million.

Stock-Based Compensation

The weighted average fair values of options granted during the nine months ended September 30, 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:


	Nine Months Ended September 30
	2010			2009
Dividend yield		0.17	%		4.16	%
Expected stock price volatility		56.09			83.17
Risk-free interest rate (weighted average)		2.80			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		937,795		21,567		23.00
Exercised/vested		-		-		-		(1,175,336)		-		70.62
Cancelled/expired/forfeited		(737,077)		9.06 - 140.14		54.57		(184,083)		(5,565)		30.23
Amortization of restricted stock compensation		-		-		-		-		(31,410)		-

Balance, September 30, 2010		18,117,113		$9.06 - $150.45		$51.17		4,348,548		$43,753		$25.20



Exercisable, September 30, 2010		12,041,743				$65.99

Available for additional grant, September 30, 2010 ¹		7,399,685

¹	Includes 3,541,193 shares available to be issued as restricted stock.

The following table presents information on stock options by ranges of exercise price at September 30, 2010:

Notes to Consolidated Financial Statements (Unaudited) - Continued

(Dollars in thousands except per share data)


	Options Outstanding								Options Exercisable
Range of Exercise Prices	Number Outstanding at September 30, 2010		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Total Aggregate Intrinsic Value		Number Exercisable at September 30, 2010		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Total Aggregate Intrinsic Value
$9.06 to 49.46		5,521,244		$15.90		8.09		$64,309		426,074		$44.07		2.32		$558
$49.47 to 64.57		4,685,271		56.44		1.64		-		4,685,271		56.44		1.64		-
$64.58 to 150.45		7,910,598		72.66		4.22		-		6,930,398		73.80		3.77		-

		18,117,113		$51.17		4.73		$64,309		12,041,743		$65.99		2.89		$558

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

Three Months Ended
September 30

Nine Months Ended
September 30

(Dollars in thousands)

2010

2009

2010

2009

Stock-based compensation expense:

Stock options

$3,538

$1,756

$10,643

$8,234

Restricted stock

9,189

15,053

31,410

51,330

Total stock-based compensation expense

$12,727

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