Edgar Filing: SUNTRUST BANKS INC

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Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2011

[] 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).

x Yes ¨ 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.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

At July 28, 2011, 536,877,003 shares of the Registrant’s Common Stock, $1.00 par value, were outstanding.

TABLE OF CONTENTS


			Page
Glossary of Defined Terms				i -iii

PART I FINANCIAL INFORMATION

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

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		71
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		110
	Item 4.	Controls and Procedures		110

PART II OTHER INFORMATION

	Item 1.	Legal Proceedings		110
	Item 1A.	Risk Factors		110
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		110
	Item 3.	Defaults Upon Senior Securities		111
	Item 4.	(Removed and Reserved)		111
	Item 5.	Other Information		111
	Item 6.	Exhibits		111

SIGNATURE				113

PART I – FINANCIAL INFORMATION

The following unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X, and accordingly do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. However, in the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary to comply with Regulation S-X have been included. Operating results for the three and six months ended June 30, 2011 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2011.

GLOSSARY OF DEFINED TERMS

ABS — Asset-backed securities.

AFS — Available for sale.

ALCO — Asset/Liability Management Committee.

ALLL — Allowance for loan and lease losses.

AOCI — Accumulated other comprehensive income.

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 Company’s Board of Directors.

CCAR — Comprehensive Capital Analysis and Review.

CDO — Collateralized debt obligation.

CD — Certificate of deposit.

CDS — Credit default swaps.

CIB — Corporate and Investment Banking.

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

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

CLO — Collateralized loan obligation.

Coke —The Coca-Cola Company.

Company — SunTrust Banks, Inc.

CP — Commercial paper.

CPP — Capital Purchase Program.

CRE — Commercial Real Estate.

CSA — Credit support annex.

DBRS — Dun and Bradstreet, Inc.

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

EPS — Earnings per share.

ERISA — Employee Retirement Income Security Act of 1974.

Exchange Act — Securities Exchange Act of 1934.

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.

FFIEC — Federal Financial Institutions Examination Council

FHA — Federal Housing Administration.

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.

GB&T — GB&T Bancshares, Inc.

GSE — Government-sponsored enterprise.

IFRS — International Financial Reporting Standards.

IPO — Initial public offering.

IRLC — Interest rate lock commitments.

IRS — Internal Revenue Service.

ISDA — International Swaps and Derivatives Associations Master Agreement.

KBW Bank Sector Index — Keefe, Bruyette & Woods, Inc. Bank Sector Index.

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.

LTV— Loan to value.

MBS — Mortgage-backed securities.

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

Moody’s — Moody’s Investors Service.

MSR — Mortgage servicing right.

MVE — Market value of equity.

NEO — Named executive officers.

NOW — Negotiable order of withdrawal account.

NPL — Nonperforming loan.

NSF — Non-sufficient funds.

OCI — Other comprehensive income.

OREO — Other real estate owned.

OTC — Over-the-counter.

OTTI — Other-than-temporary impairment.

Parent Company — Parent Company of SunTrust Banks, Inc. and subsidiaries.

QSPE — Qualifying special-purpose entity.

RidgeWorth — RidgeWorth Capital Management, Inc.

ROA— Return on average total assets.

ROE — Return on average common shareholders’ equity.

S&P — Standard and Poor’s.

SBA — Small Business Administration.

SEC — U.S. Securities and Exchange Commission.

SIV — Structured investment vehicles.

SPE — Special purpose entity.

STIS — SunTrust Investment Services, Inc.

STM — SunTrust Mortgage, Inc.

STRH — SunTrust Robinson Humphrey, Inc.

SunTrust — SunTrust Banks, Inc.

TARP — Troubled Asset Relief Program.

TDR — Troubled debt restructuring.

The Agreements — Equity forward agreements.

Three Pillars —Three Pillars Funding, LLC.

TRS — Total return swaps.

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

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

UTB — Unrecognized tax benefits.

VA —Veteran’s 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.

W&IM — Wealth and Investment Management.

iii

Item 1. FINANCIAL STATEMENTS (UNAUDITED)

SunTrust Banks, Inc.

Consolidated Statements of Income/(Loss)

		000000		000000		000000		000000
	For the Three Months Ended				For the Six Months Ended
	June 30				June 30
(Dollars in millions and shares in thousands, except per share data) (Unaudited)	2011		2010		2011		2010
Interest Income
Interest and fees on loans		$1,299		$1,318		$2,613		$2,635
Interest and fees on loans held for sale		22		33		50		66
Interest and dividends on securities available for sale:
Taxable interest		177		167		342		343
Tax-exempt interest		6		9		11		18
Dividends¹		21		19		41		38
Trading account interest		21		24		43		44

Total interest income		1,546		1,570		3,100		3,144

Interest Expense
Interest on deposits		162		225		331		458
Interest on funds purchased and securities sold under agreements to repurchase		1		2		2		3
Interest on trading liabilities		8		8		16		14
Interest on other short-term borrowings		3		3		6		6
Interest on long-term debt		113		154		237		313

Total interest expense		287		392		592		794

Net interest income		1,259		1,178		2,508		2,350
Provision for credit losses		392		662		839		1,524

Net interest income after provision for credit losses		867		516		1,669		826

Noninterest Income
Service charges on deposit accounts		170		208		333		404
Other charges and fees		130		133		256		262
Card fees		105		94		205		181
Trust and investment management income		135		127		270		249
Retail investment services		59		48		117		95
Mortgage production related income/(loss)		4		(16)		3		(47)
Mortgage servicing related income		72		88		144		158
Investment banking income		95		58		162		114
Trading account profits and commissions		53		109		105		102
Net securities gains²		32		57		96		58
Other noninterest income		57		46		104		74

Total noninterest income		912		952		1,795		1,650

Noninterest Expense
Employee compensation		638		575		1,256		1,132
Employee benefits		110		107		246		242
Outside processing and software		162		158		320		307
Net occupancy expense		89		90		178		181
Regulatory assessments		81		65		152		129
Other real estate expense		64		87		133		133
Credit and collection services		60		66		111		140
Equipment expense		44		42		88		83
Marketing and customer development		46		44		84		78
Operating losses		62		16		89		30
Amortization of intangible assets		12		13		23		26
Net loss/(gain) on debt extinguishment		(1)		63		(2)		54
Other noninterest expense		175		177		329		329

Total noninterest expense		1,542		1,503		3,007		2,864

Income/(loss) before provision/(benefit) for income taxes		237		(35)		457		(388)
Provision/(benefit) for income taxes		58		(50)		91		(244)

Net income/(loss) including income attributable to noncontrolling interest		179		15		366		(144)
Net income attributable to noncontrolling interest		1		3		8		5

Net income/(loss)		$178		$12		$358		($149)

Net income/(loss) available to common shareholders		$174		($56)		$212		($285)

Net income/(loss) per average common share
Diluted³		$0.33		($0.11)		$0.41		($0.58)
Basic		0.33		(0.11)		0.41		(0.58)
Dividends declared per common share		$0.01		$0.01		$0.02		$0.02
Average common shares - diluted		535,416		498,499		519,548		498,369
Average common shares - basic		531,792		495,351		515,819		495,112

¹	Includes dividends on common stock of The Coca-Cola Company of $14 million and $13 million during the three months ended June 30, 2011 and 2010, respectively, and $28 million and $26 million during the six months ended June 30, 2011 and 2010, respectively.

²	Includes credit-related other-than-temporary impairment losses of $1 million for the three months ended June 30, 2011 and 2010, and $2 million for the six months ended June 30, 2011 and 2010.

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

		000000000000000		000000000000000
	As of
(Dollars in millions and shares in thousands) (Unaudited)	June 30, 2011		December 31, 2010
Assets
Cash and due from banks		$5,633		$4,296
Interest-bearing deposits in other banks		20		24
Funds sold and securities purchased under agreements to resell		1,134		1,058

Cash and cash equivalents		6,787		5,378
Trading assets		6,586		6,175
Securities available for sale		27,216		26,895
Loans held for sale¹(loans at fair value: $1,925 as of June 30, 2011 and $3,168 as of December 31, 2010)		2,052		3,501
Loans²(loans at fair value: $449 as of June 30, 2011 and $492 as of December 31, 2010)		114,913		115,975
Allowance for loan and lease losses		(2,744)		(2,974)

Net loans		112,169		113,001
Premises and equipment		1,536		1,620
Goodwill		6,343		6,323
Other intangible assets (MSRs at fair value: $1,423 as of June 30, 2011 and $1,439 as of December 31, 2010)		1,539		1,571
Other real estate owned		483		596
Other assets		7,462		7,814

Total assets		$172,173		$172,874


Liabilities and Shareholders’ Equity
Noninterest-bearing consumer and commercial deposits		$30,591		$27,290
Interest-bearing consumer and commercial deposits		91,080		92,735

Total consumer and commercial deposits		121,671		120,025
Brokered deposits (CDs at fair value: $1,140 as of June 30, 2011 and $1,213 of December 31, 2010)		2,345		2,365
Foreign deposits		905		654

Total deposits		124,921		123,044
Funds purchased		939		951
Securities sold under agreements to repurchase		2,253		2,180
Other short-term borrowings		2,791		2,690
Long-term debt ³(debt at fair value: $2,022 as of June 30, 2011 and $2,837 as of December 31, 2010)		13,693		13,648
Trading liabilities		3,026		2,678
Other liabilities		4,890		4,553

Total liabilities		152,513		149,744


Preferred stock, no par value		172		4,942
Common stock, $1.00 par value		550		515
Additional paid in capital		9,330		8,403
Retained earnings		8,745		8,542
Treasury stock, at cost, and other		(805)		(888)
Accumulated other comprehensive income, net of tax		1,668		1,616

Total shareholders’ equity		19,660		23,130

Total liabilities and shareholders’ equity		$172,173		$172,874


Common shares outstanding		536,907		500,436
Common shares authorized		750,000		750,000
Preferred shares outstanding		2		50
Preferred shares authorized		50,000		50,000
Treasury shares of common stock		13,014		14,231

¹Includes loans held for sale, at fair value, of consolidated VIEs		$329		$316
²Includes loans of consolidated VIEs		2,896		2,869
³ Includes debt of consolidated VIEs ($289 and $290 at fair value at June 30, 2011 and December 31, 2010, respectively)		743		764

See Notes to Consolidated Financial Statements (unaudited).

SunTrust Banks, Inc.

Consolidated Statements of Shareholders’ Equity


(Dollars and shares in millions, 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, 2010		$4,917		499		$515		$8,521		$8,563		($1,055)		$1,070		$22,531
Net loss		-		-		-		-		(149)		-		-		(149)
Other comprehensive income:
Change in unrealized gains on securities, net of taxes		-		-		-		-		-		-		215		215
Change in unrealized gains on derivatives, net of taxes		-		-		-		-		-		-		377		377
Change related to employee benefit plans		-		-		-		-		-		-		83		83

Total comprehensive income																526
Common stock dividends, $0.02 per share		-		-		-		-		(10)		-		-		(10)
Series A preferred stock dividends, $2,022 per share		-		-		-		-		(4)		-		-		(4)
U.S. Treasury preferred stock dividends, $2,500 per share		-		-		-		-		(120)		-		-		(120)
Accretion of discount for preferred stock issued to U.S. Treasury		12		-		-		-		(12)		-		-		-
Stock compensation expense		-		-		-		11		-		-		-		11
Restricted stock activity		-		1		-		(69)		-		42		-		(27)
Amortization of restricted stock compensation		-		-		-		-		-		22		-		22
Issuance of stock for employee benefit plans and other		-		-		-		(18)		1		23		-		6
Fair value election of MSRs		-		-		-		-		89		-		-		89

Balance, June 30, 2010		$4,929		500		$515		$8,445		$8,358		($968)		$1,745		$23,024


Balance, January 1, 2011		$4,942		500		$515		$8,403		$8,542		($888)		$1,616		$23,130
Net income		-		-		-		-		358		-		-		358
Other comprehensive income:
Change in unrealized gains on securities, net of taxes		-		-		-		-		-		-		121		121
Change in unrealized gains on derivatives, net of taxes		-		-		-		-		-		-		(53)		(53)
Change related to employee benefit plans		-		-		-		-		-		-		(16)		(16)

Total comprehensive income																410
Change in noncontrolling interest		-		-		-		-		-		1		-		1
Common stock dividends, $0.02 per share		-		-		-		-		(11)		-		-		(11)
Series A preferred stock dividends, $2,022 per share		-		-		-		-		(4)		-		-		(4)
U.S. Treasury preferred stock dividends, $1,236 per share		-		-		-		-		(60)		-		-		(60)
Accretion of discount for preferred stock issued to U.S. Treasury		6		-		-		-		(6)		-		-		-
Repurchase of preferred stock issued to U.S. Treasury		(4,776)		-		-		-		(74)		-		-		(4,850)
Issuance of common stock		-		35		35		982		-		-		-		1,017
Stock compensation expense		-		-		-		7		-		-		-		7
Restricted stock activity		-		2		-		(54)		-		46		-		(8)
Amortization of restricted stock compensation		-		-		-		-		-		17		-		17
Issuance of stock for employee benefit plans and other		-		-		-		(8)		-		19		-		11

Balance, June 30, 2011		$172		537		$550		$9,330		$8,745		($805)		$1,668		$19,660

1	Balance at June 30, 2011 includes ($869) for treasury stock, ($67) for compensation element of restricted stock, and $131 for noncontrolling interest.

Balance at June 30, 2010 includes ($1,021) for treasury stock, ($55) for compensation element of restricted stock, and $108 for noncontrolling interest.

See Notes to Consolidated Financial Statements (unaudited).

SunTrust Banks, Inc.

Consolidated Statements of Cash Flows


	Six Months Ended June 30
(Dollars in millions) (Unaudited)	2011		2010
Cash Flows from Operating Activities:
Net income/(loss) including income attributable to noncontrolling interest		$366		($144)
Adjustments to reconcile net income/(loss) to net cash provided by operating activities:
Depreciation, amortization, and accretion		372		404
Origination of Mortgage Servicing Rights		(136)		(134)
Provisions for credit losses and foreclosed property		930		1,620
Amortization of restricted stock compensation		17		22
Stock option compensation		7		11
Net (gain)/loss on extinguishment of debt		(2)		54
Net securities gains		(96)		(58)
Net (gain)/loss on sale of assets		(141)		(218)
Net decrease in loans held for sale		1,718		1,045
Net increase in other assets		(358)		(406)
Net increase in other liabilities		421		170

Net cash provided by operating activities		3,098		2,366


Cash Flows from Investing Activities:
Proceeds from maturities, calls, and paydowns of securities available for sale		2,414		2,802
Proceeds from sales of securities available for sale		10,763		10,526
Purchases of securities available for sale		(12,603)		(12,677)
Proceeds from maturities, calls, and paydowns of trading securities		124		78
Proceeds from sales of trading securities		102		61
Net (increase)/decrease in loans including purchases of loans		(1,109)		31
Proceeds from sales of loans		287		600
Capital expenditures		(9)		(89)
Contingent consideration and other payments related to acquisitions		(18)		(4)
Proceeds from the sale of other assets		360		349

Net cash provided by investing activities		311		1,677


Cash Flows from Financing Activities:
Net increase/(decrease) in total deposits		1,877		(3,194)
Net increase/(decrease) in funds purchased, securities sold under agreements to repurchase, and other short-term borrowings		162		(1,135)
Proceeds from the issuance of long-term debt		1,039		500
Repayment of long-term debt		(1,170)		(2,283)
Proceeds from the issuance of common stock		1,017		-
Repurchase of preferred stock		(4,850)		-
Common and preferred dividends paid		(75)		(135)

Net cash used in financing activities		(2,000)		(6,247)

Net increase/(decrease) in cash and cash equivalents		1,409		(2,204)
Cash and cash equivalents at beginning of period		5,378		6,997

Cash and cash equivalents at end of period		$6,787		$4,793


Supplemental Disclosures:
Loans transferred from loans held for sale to loans		$46		$17
Loans transferred from loans to loans held for sale		198		238
Loans transferred from loans to other real estate owned		367		622
Accretion of discount for preferred stock issued to the U.S. Treasury		80		12
Total assets of newly consolidated VIEs at January 1, 2010		-		2,049

See Notes to Consolidated Financial Statements (unaudited).

Notes to Consolidated Financial Statements (Unaudited)

Note 1 – Significant Accounting Policies

Basis of Presentation

The unaudited 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 Company’s Annual Report on Form 10-K for the year ended December 31, 2010. 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 Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

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, and residential loans. Interest income on all types of loans, except those classified as nonaccrual, is accrued based upon the outstanding principal amounts using the effective yield method.

Commercial loans (commercial & industrial, commercial real estate, and commercial construction) are considered to be past due when payment is not received from the borrower by the contractually specified due date. The Company typically classifies commercial loans as nonaccrual when one of the following events occurs: (i) interest or principal has been past due 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. When a loan is placed on nonaccrual, unpaid interest is reversed against interest income. Interest income on nonaccrual loans, if recognized, is recognized after the principal has been reduced to zero. If and when commercial 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.

Consumer loans (guaranteed student loans, other direct, indirect, and credit card) are considered to be past due when payment is not received from the borrower by the contractually specified due date. Other direct and indirect loans are typically placed on nonaccrual when payments have been past due for 90 days or more except when the borrower has declared bankruptcy, in which case, they are moved to nonaccrual status once they become 60 days past due. Credit card loans are never placed on nonaccrual status but rather are charged off once they are 180 days past due. Guaranteed student loans continue to accrue interest regardless of delinquency status because collection of principal and interest is reasonably assured. When a loan is placed on nonaccrual, unpaid interest is reversed against interest income. Interest income on nonaccrual loans, if recognized, is recognized after the principal has been reduced to zero. Nonaccrual loans are typically returned to accrual status once they no longer meet the delinquency threshold that resulted in them initially being moved to nonaccrual status.

Residential loans (guaranteed residential mortgages, nonguaranteed residential mortgages, home equity products, and residential construction) are considered to be past due when a monthly payment is due and unpaid for one month. Nonguaranteed residential mortgages and residential construction loans are generally placed on nonaccrual when payments are 120 days past due. Home equity products are generally placed on nonaccrual when payments are 90 days past due. The exception for nonguaranteed residential mortgages, residential construction loans, and home equity products is when the borrower has declared bankruptcy, in which case, they are moved to nonaccrual status once they become 60 days past due. Guaranteed residential mortgages continue to accrue interest regardless of delinquency status because collection of principal and interest is reasonably assured. When a loan is placed on nonaccrual, unpaid interest is reversed against interest income. Interest income on nonaccrual loans, if recognized, is recognized on a cash basis. Nonaccrual loans are typically returned to accrual status once they no longer meet the delinquency threshold that resulted in them initially being moved to nonaccrual status.

Notes to Consolidated Financial Statements (Unaudited)-Continued

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 under the potential 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 Credit 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 through 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 residential loan becomes a TDR, it is probable that the loan will likely continue to be reported as a TDR for the life of the loan. Interest income recognition on impaired loans is dependent upon nonaccrual status, TDR designation, and loan type as discussed above.

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 funded 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 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. See Note 3, “Loans” for additional information.

Allowance for Credit Losses

The Allowance for Credit Losses is composed of the ALLL and the reserve for unfunded commitments. 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. In addition to the review of credit quality through ongoing credit review processes, the Company employs a variety of modeling and estimation techniques to measure credit risk and construct an appropriate and adequate ALLL. Numerous asset quality measures, both quantitative and qualitative, are considered in estimating the ALLL. Such evaluation considers numerous factors for each of the loan portfolio segments, including, but not limited to net charge-off trends, internal risk ratings, changes in internal risk ratings, loss forecasts, collateral values, geographic location, delinquency rates, nonperforming and restructured loan status, origination channel, product mix, underwriting practices, industry conditions, and economic trends. In addition to these factors, refreshed FICO scores are considered for consumer and residential loans and single name borrower concentration is considered for commercial loans. These credit quality factors are incorporated into various loss estimation models and analytical tools utilized in the ALLL process and/or are qualitatively considered in evaluating the overall reasonableness of the ALLL.

Large commercial (all loan classes) nonaccrual loans and certain consumer (other direct), residential (nonguaranteed residential mortgages, home equity products, and residential construction), and commercial (all classes) loans whose terms have been modified in a TDR are individually identified for evaluation of impairment. A loan is considered impaired when it is probable that the Company will be unable to collect all amounts due, including principal and interest, according to the contractual terms of the agreement. If necessary, a specific allowance is established for individually evaluated impaired loans. The specific allowance established for these loans 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. Any change in the present value attributable to the passage of time is recognized through the provision for credit losses.

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. These influences may include elements such as changes in credit underwriting, concentration risk, macroeconomic conditions, and/or recent observable asset quality trends.

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.

Notes to Consolidated Financial Statements (Unaudited)-Continued

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 commercial real estate loans secured by property, acceptable third-party 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 net realizable value of the loan, net of estimated selling costs. 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 net realizable 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.

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, existing economic conditions, 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 was 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. See Note 4, “Allowance for Credit Losses,” for additional information.

Accounting Policies Recently Adopted and Pending Accounting Pronouncements

In January 2010, the FASB issued ASU 2010-06, an update to ASC 820-10, “Fair Value Measurements.” This ASU requires the disclosure of transfers in and out of level 1 and 2 of the fair value hierarchy, along with the reasons for the transfers and a gross presentation of purchases and sales of level 3 instruments. Additionally, the ASU requires fair value measurement disclosures for each class of assets and liabilities and enhanced disclosures around level 2 valuation techniques and inputs. The Company adopted the disclosure requirements for level 1 and 2 transfers and the expanded fair value measurement and valuation disclosures effective January 1, 2010. The disclosure requirements for level 3 activities were effective for the interim reporting period ending March 31, 2011. The required disclosures are included in Note 12, “Fair Value Election and Measurement.” The adoption of these disclosure requirements had no impact on the Company’s financial position, results of operations, or EPS.

Notes to Consolidated Financial Statements (Unaudited)-Continued

In July 2010, the FASB issued ASU 2010-20, “Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.” The ASU requires more disclosures about the credit quality of financing receivables, which include loans, lease receivables, and other long-term receivables, and the credit allowances held against them. The disclosure requirements that were effective as of December 31, 2010 are included in Note 3, “Loans,” and Note 4, “Allowance for Credit Losses.” Disclosures about activity that occurs during a reporting period were effective for the interim reporting period ending March 31, 2011 are also included in Note 3, “Loans,” and Note 4, “Allowance for Credit Losses,”. The adoption of the ASU did not have an impact on the Company’s financial position, results of operations, or EPS.

In December 2010, the FASB issued ASU 2010-28, “When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts.” The update requires companies to perform step 2 of the goodwill impairment analysis if the carrying value of a reporting unit is zero or negative and it is more likely than not that goodwill for that reporting unit is impaired. The adoption of the ASU as of January 1, 2011 did not have an impact on the Company’s financial position, results of operations, or EPS.

In April 2011, the FASB issued ASU 2011-02, “Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring.” The ASU provides additional guidance to assist creditors in determining whether a modification of a receivable meets the criteria to be considered a TDR, both for purposes of recognizing loan losses and additional disclosures regarding TDRs. A modification of a credit arrangement constitutes a TDR if it constitutes a concession and the debtor is experiencing financial difficulties. The clarifications for classification apply to all restructurings occurring on or after January 1, 2011. The measurement of impairment for those newly identified TDRs will be applied prospectively beginning on July 1, 2011. The related disclosures, which were previously deferred by ASU 2011-01, will be required for the interim reporting period ending September 30, 2011 and subsequent reporting periods. The adoption of the ASU is not expected to have a significant impact on the Company’s financial position, results of operations, or EPS. The Company’s level of TDRs increased by less than $100 million at the date of adoption.

In April 2011, the FASB issued ASU 2011-03, “Transfers and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreements.” A repurchase agreement is a transaction in which a company sells financial instruments to a buyer, typically in exchange for cash, and simultaneously enters into an agreement to repurchase the same or substantially the same financial instruments from the buyer at a stated price plus accrued interest at a future date. The determination of whether the transaction is accounted for as a sale or a collateralized financing is determined by assessing whether the seller retains effective control of the financial instrument. The ASU changes the assessment of effective control by removing the criterion that requires the seller to have the ability to repurchase or redeem financial assets with substantially the same terms, even in the event of default by the buyer and the collateral maintenance implementation guidance related to that criterion. The Company will apply the new guidance to repurchase agreements entered into or amended after January 1, 2012. The Company does not expect the ASU to have a significant impact on the Company’s financial position, results of operations, or EPS.

In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” The primary purpose of the ASU is to conform the language in the fair value measurements guidance in U.S. GAAP and IFRS. The ASU also clarifies how to apply existing fair value measurement and disclosure requirements. Further, the ASU requires additional disclosures about transfers between level 1 and 2 of the fair value hierarchy, quantitative information for level 3 inputs, and the level of the fair value measurement hierarchy for items that are not measured at fair value in the statement of financial position but for which the fair value is required to be disclosed. The ASU is effective for the interim reporting period ending March 31, 2012. The Company is evaluating the impact of the ASU; however, it is not expected to have a significant impact on the Company’s financial position, results of operations, or EPS.

In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income.” The ASU requires presentation of the components of comprehensive income in either a continuous statement of comprehensive income or two separate but consecutive statements. The update does not change the items presented in OCI and does not affect the calculation or reporting of EPS. The guidance is effective on January 1, 2012 and must be applied retrospectively for all periods presented. The Company is in the process of evaluating the presentation options; however, adoption of the ASU will not have an impact on the Company’s financial position, results of operations, or EPS.

Notes to Consolidated Financial Statements (Unaudited)-Continued

Note 2 – Securities Available for Sale

Securities Portfolio Composition

		000000000000000		000000000000000		000000000000000		000000000000000
	June 30, 2011
(Dollars in millions)	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
U.S. Treasury securities		$730		$4		$8		$726
Federal agency securities		2,519		48		1		2,566
U.S. states and political subdivisions		499		19		2		516
MBS - agency		18,797		536		2		19,331
MBS - private		335		1		25		311
CDO securities		337		-		-		337
ABS		615		14		4		625
Corporate and other debt securities		54		3		1		56
Coke common stock		-		2,019		-		2,019
Other equity securities¹		728		1		-		729

Total securities AFS		$24,614		$2,645		$43		$27,216


	December 31, 2010
(Dollars in millions)	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
U.S. Treasury securities		$5,446		$115		$45		$5,516
Federal agency securities		1,883		19		7		1,895
U.S. states and political subdivisions		565		17		3		579
MBS - agency		14,014		372		28		14,358
MBS - private		378		3		34		347
CDO securities		50		-		-		50
ABS		798		15		5		808
Corporate and other debt securities		464		19		1		482
Coke common stock		-		1,973		-		1,973
Other equity securities¹		886		1		-		887

Total securities AFS		$24,484		$2,534		$123		$26,895

¹At June 30, 2011, other equity securities included $205 million in FHLB of Atlanta stock (par value), $391 million in Federal Reserve Bank stock (par value), and $132 million in mutual fund investments (par value). At December 31, 2010, other equity securities included $298 million in FHLB of Atlanta stock (par value), $391 million in Federal Reserve Bank stock (par value), and $197 million in mutual fund investments (par value).

Securities AFS that were pledged to secure public deposits, repurchase agreements, trusts, and other funds had a fair value of $4.5 billion and $6.9 billion as of June 30, 2011 and December 31, 2010, respectively. Further, under The Agreements, the Company pledged its shares of Coke common stock, which is hedged with derivative instruments, as discussed in Note 11, “Derivative Financial Instruments.” The Company has also pledged $1.1 billion of certain trading assets and cash equivalents to secure $1.0 billion of repurchase agreements as of June 30, 2011.

Notes to Consolidated Financial Statements (Unaudited)-Continued

The amortized cost and fair value of investments in debt securities at June 30, 2011 by estimated average life are shown below. Actual cash flows may differ from estimated average lives and contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

(Dollars in millions)

1 Year
or Less

1-5
Years

5-10
Years

After 10
Years

Total

Distribution of Maturities:

Amortized Cost

U.S. Treasury securities

$214

$508

$730

Federal agency securities

2,010

414

2,519

U.S. states and political subdivisions

131

255

499

MBS - agency

778

11,566

1,105

5,348

18,797

MBS - private

300

335

CDO securities

150

187

337

ABS

386

223

615

Corporate and other debt securities

Total debt securities

$1,554

$14,759

$2,096

$5,477

$23,886

Fair Value

U.S. Treasury securities

$219

$499

$726

Federal agency securities

2,044

427

2,566

U.S. states and political subdivisions

135

269

516

MBS - agency

797

11,947

1,146

5,441

19,331

MBS - private

279

311

CDO securities

150

187

337

ABS

395

225

625

Corporate and other debt securities

Total debt securities

$1,583

$15,174

$2,143

$5,568

$24,468

Securities in an Unrealized Loss Position

The Company held certain investment securities having unrealized loss positions. Market changes in interest rates and credit spreads will result in temporary unrealized losses as the market price of securities fluctuates. As of June 30, 2011, the Company did not intend to sell these securities nor was it more likely than not that the Company would 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, 2010.

Notes to Consolidated Financial Statements (Unaudited)-Continued

Securities in a continuous unrealized loss position at June 30, 2011 and December 31, 2010 were as follows:



	June 30, 2011
	Less than twelve months				Twelve months or longer				Total
(Dollars in millions)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Temporarily impaired securities
U.S. Treasury securities		$499		$8		$-		$-		$499		$8
Federal agency securities		85		1		-		-		85		1
U.S. states and political subdivisions		9		-		34		2		43		2
MBS - agency		477		2		-		-		477		2
MBS - private		4		-		23		3		27		3
CDO securities		162		-		-		-		162		-
ABS		-		-		13		3		13		3
Corporate and other debt securities		-		-		3		1		3		1

Total temporarily impaired securities		1,236		11		73		9		1,309		20

Other-than-temporarily impaired securities¹
MBS - private		19		1		241		21		260		22
ABS		2		-		3		1		5		1

Total other-than-temporarily impaired securities		21		1		244		22		265		23


Total impaired securities		$1,257		$12		$317		$31		$1,574		$43


	December 31, 2010
	Less than twelve months				Twelve months or longer				Total
(Dollars in millions)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Temporarily impaired securities
U.S. Treasury securities		$2,010		$45		$-		$-		$2,010		$45
Federal agency securities		1,426		7		-		-		1,426		7
U.S. states and political subdivisions		45		1		35		2		80		3
MBS - agency		3,497		28		-		-		3,497		28
MBS - private		18		-		17		3		35		3
ABS		-		-		14		4		14		4
Corporate and other debt securities		-		-		3		1		3		1

Total temporarily impaired securities		6,996		81		69		10		7,065		91

Other-than-temporarily impaired securities¹
MBS - private		-		-		286		31		286		31
ABS		4		1		-		-		4		1

Total other-than-temporarily impaired securities		4		1		286		31		290		32


Total impaired securities		$7,000		$82		$355		$41		$7,355		$123

¹Includes OTTI securities for which credit losses have been recorded in earnings in current or prior periods.

Unrealized losses on securities that have been other-than-temporarily impaired are the result of factors other than credit and therefore are recorded in OCI. Losses related to credit impairment on these securities is determined through estimated cash flow analyses and have been recorded in earnings in current or prior periods. The unrealized OTTI loss relating to private MBS as of June 30, 2011, includes purchased and retained interests from 2007 vintage securitizations. The unrealized OTTI loss relating to ABS is related to three securities within the portfolio that are 2003 vintage home equity issuances. 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.

Notes to Consolidated Financial Statements (Unaudited)-Continued

Realized Gains and Losses and Other than Temporarily Impaired

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


	Three Months Ended June 30				Six Months Ended June 30
(Dollars in millions)	2011		2010		2011		2010
Gross realized gains		$33		$62		$176		$77
Gross realized losses		-		(4)		(78)		(17)
OTTI		(1)		(1)		(2)		(2)

Net securities gains		$32		$57		$96		$58

The securities that gave rise to the credit impairment recognized during the six months ended June 30, 2011 consisted of private MBS with a fair value of $193 million at June 30, 2011. The securities impacted by credit impairment during the six months ended June 30, 2010, consisted of private MBS with a fair value of $1 million as of June 30, 2010. Credit impairment that is determined through the use of cash flow models is estimated using cash flows on security specific collateral and the transaction structure. Future expected credit losses are determined by using various assumptions, the most significant of which include current default rates, prepayment rates, and loss severities. For the majority of the securities that the Company has reviewed for credit-related OTTI, credit information is available and modeled at the loan level underlying each security, and the Company 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. During the six months ended June 30, 2011 and 2010, all OTTI recognized in earnings on private MBS have underlying collateral of residential mortgage loans securitized in 2007. The majority of the OTTI was taken on private MBS which were originated by the Company and, therefore, have geographic concentrations in the Company’s primary footprint. Additionally, the Company has not purchased new private MBS during the six months ended June 30, 2011, and continues to reduce existing exposure primarily through paydowns.


	Three Months Ended June 30				Six Months Ended June 30
	2011		2010		2011		2010

(Dollars in millions)	MBS - Private		MBS - Private		MBS - Private		MBS - Private
Total OTTI losses		$1		$1		$2		$2
Portion of losses recognized in OCI (before taxes) ¹		-		-		-		-

Net impairment losses recognized in earnings		$1		$1		$2		$2

¹ The 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 six months ended June 30, 2011 and 2010, related to securities for which some portion of the OTTI loss remains in AOCI:


(Dollars in millions)
Balance, as of January 1, 2010			$22
Additions/reductions¹			-

Balance, as of June 30, 2010			$22


Balance, as of January 1, 2011			$20
Additions:
OTTI credit losses on previously impaired securities			2
Reductions:
Increases in expected cash flows recognized over the remaining life of the securities			(1)

Balance, as of June 30, 2011			$21

¹During the six months ended June 30, 2010, the Company recognized $2 million of OTTI through earnings on debt securities in which no portion of the OTTI loss was included in OCI at any time during the period. OTTI related to these securities are excluded from this amount.

Notes to Consolidated Financial Statements (Unaudited)-Continued

The following table presents a summary of the significant inputs used in determining the measurement of credit losses recognized in earnings for private MBS as of June 30, 2011 and December 31, 2010:


	June 30, 2011	December 31, 2010
Current default rate	4 - 8%	2 - 7%
Prepayment rate	12 - 22%	14 - 22%
Loss severity	39 - 44%	37 - 46%

Note 3 - Loans

Composition of Loan Portfolio


(Dollars in millions)	June 30, 2011		December 31, 2010
Commercial loans:
Commercial & industrial¹		$45,922		$44,753
Commercial real estate		5,707		6,167
Commercial construction		1,740		2,568

Total commercial loans		53,369		53,488
Residential loans:
Residential mortgages - guaranteed		4,513		4,520
Residential mortgages - nonguaranteed²		23,224		23,959
Home equity products		16,169		16,751
Residential construction		1,118		1,291

Total residential loans		45,024		46,521
Consumer loans:
Guaranteed student loans		4,620		4,260
Other direct		1,863		1,722
Indirect		9,630		9,499
Credit cards		407		485

Total consumer loans		16,520		15,966

LHFI		$114,913		$115,975

LHFS		$2,052		$3,501

¹Includes $4 million of loans carried at fair value at June 30, 2011 and December 31, 2010, respectively.

²Includes $445 million and $488 million of loans carried at fair value at June 30, 2011 and December 31, 2010, respectively.

During the six months ended June 30, 2011, the Company transferred $198 million in LHFI to LHFS. Additionally, during the six months ended June 30, 2011, the Company sold $277 million in loans and leases that had been held for investment at December 31, 2010 for a gain of $10 million. There were no other material purchases or sales of LHFI during the period.

Credit Quality Evaluation

The Company evaluates the credit quality of its loan portfolio based on internal credit risk ratings using numerous factors, including consumer credit risk scores, rating agency information, LTV ratios, collateral, collection experience, and other internal metrics. For the commercial portfolio, the Company believes that the most appropriate credit quality indicator is the individual loan’s risk assessment expressed according to regulatory agency classification, pass or criticized. Loans are rated pass or criticized based on the borrower’s willingness and ability to contractually perform along with the estimated net losses the Company would incur in the event of default. Criticized loans have a higher probability of default. As a result, criticized loans are further categorized into accruing and nonaccruing, representing management’s assessment of the collectability of principal and interest. Ratings for loans are updated at least annually or more frequently if there is a material change in creditworthiness.

Notes to Consolidated Financial Statements (Unaudited)-Continued

For consumer and residential loans, the Company believes that consumer credit risk, as assessed by the FICO scoring method, is a relevant credit quality indicator. FICO scores are obtained at origination as part of the Company’s formal underwriting process, and refreshed FICO scores are obtained by the Company at least quarterly. However, for student loans which are guaranteed by a federal agency, the Company does not utilize FICO scores as the Company does not originate government guaranteed student loans. For guaranteed student loans, the Company monitors the credit quality based primarily on delinquency status, which it believes is the most appropriate indicator of credit quality. As of June 30, 2011 and December 31, 2010, 77% of the guaranteed student loan portfolio was current with respect to payments; however, the loss exposure to the Company was mitigated by the government guarantee.

LHFI by credit quality indicator are shown in the tables below.

Commercial & industrial

Commercial real estate

Commercial construction

(Dollars in millions)

June 30,
2011

December 31,
2010

June 30,
2011

December 31,
2010

June 30,
2011

December 31,
2010

Credit rating:

Pass

$43,551

$42,140

$3,941

$4,316

$641

$836

Criticized accruing

1,834

2,029

1,367

1,509

472

771

Criticized nonaccruing

537

584

399

342

627

961

Total

$45,922

$44,753

$5,707

$6,167

$1,740

$2,568

Residential mortgages -
nonguaranteed²

Home equity products

Residential construction

June 30,
2011

December 31,
2010

June 30,
2011

December 31,
2010

June 30,
2011

December 31,
2010

Current FICO score range:

700 and above

$15,752

$15,920

$11,471

$11,673

$752

$828

620 - 699

4,226

4,457

2,862

2,897

219

258

Below 620¹

3,246

3,582

1,836

2,181

147

205

Total

$23,224

$23,959

$16,169

$16,751

$1,118

$1,291

Consumer - other direct³

Consumer - indirect

Consumer - credit cards

June 30,
2011

December 31,
2010

June 30,
2011

December 31,
2010

June 30,
2011

December 31,
2010

Current FICO score range:

700 and above

$1,111

$973

$7,023

$6,780

$219

$258

620 - 699

237

231

1,822

1,799

123

149

Below 620¹

105

785

920

Total

$1,438

$1,309

$9,630

$9,499

$407

$485

¹For substantially all loans with refreshed FICO scores below 620, the borrower’s FICO score at the time of origination exceeded 620 but has since deteriorated as the loan has seasoned.

²Excludes $4.5 billion at both June 30, 2011 and December 31, 2010 of federally guaranteed residential loans. At both June 30, 2011 and December 31, 2010, the vast majority of these loans had FICO scores of 700 and above.

³Excludes $425 million and $413 million as of June 30, 2011 and December 31, 2010, respectively, of private-label student loans with third party insurance. At both June 30, 2011 and December 31, 2010, the vast majority of these loans had FICO scores of 700 and above.

Notes to Consolidated Financial Statements (Unaudited)-Continued

The payment status for the LHFI portfolio at June 30, 2011 and December 31, 2010 is shown in the tables below:

Nonaccruing3

As of June 30, 2011

(Dollars in millions)

Accruing
Current

Accruing
30-89 Days
Past Due

Accruing
90+ Days
Past Due

Nonaccruing³

Total

Commercial loans:

Commercial & industrial¹

$45,271

$93

$21

$537

$45,922

Commercial real estate

5,291

399

5,707

Commercial construction

1,102

627

1,740

Total commercial loans

51,664

119

1,563

53,369

Residential loans:

Residential mortgages - guaranteed

3,408

163

942

4,513

Residential mortgages - nonguaranteed²

21,448

336

1,412

23,224

Home equity products

15,601

233

335

16,169

Residential construction

825

266

1,118

Total residential loans

41,282

757

972

2,013

45,024

Consumer loans:

Guaranteed student loans

3,578

417

625

4,620

Other direct

1,834

1,863

Indirect

9,547

9,630

Credit cards

391

407

Total consumer loans

15,350

495

641

16,520

Total LHFI

$108,296

$1,371

$1,636

$3,610

$114,913

¹Includes $4 million in loans carried at fair value.

²Includes $445 million in loans carried at fair value.

³Total nonaccruing loans past due 90 days or more totaled $2.8 billion. Nonaccruing loans past due fewer than 90 days include modified nonaccrual loans reported as TDRs.

		Nonaccruing3		Nonaccruing3		Nonaccruing3		Nonaccruing3		Nonaccruing3
	As of December 31, 2010
(Dollars in millions)	Accruing Current		Accruing 30-89 Days Past Due		Accruing 90+ Days Past Due		Nonaccruing³		Total
Commercial loans:
Commercial & industrial¹		$44,046		$111		$12		$584		$44,753
Commercial real estate		5,794		27		4		342		6,167
Commercial construction		1,595		11		1		961		2,568

Total commercial loans		51,435		149		17		1,887		53,488
Residential loans:
Residential mortgages - guaranteed		3,469		167		884		-		4,520
Residential mortgages - nonguaranteed²		21,916		456		44		1,543		23,959
Home equity products		16,162		234		-		355		16,751
Residential construction		953		42		6		290		1,291

Total residential loans		42,500		899		934		2,188		46,521
Consumer loans:
Guaranteed student loans		3,281		383		596		-		4,260
Other direct		1,692		15		5		10		1,722
Indirect		9,400		74		-		25		9,499
Credit cards		460		12		13		-		485

Total consumer loans		14,833		484		614		35		15,966

Total LHFI		$108,768		$1,532		$1,565		$4,110		$115,975

¹Includes $4 million in loans carried at fair value.

²Includes $488 million in loans carried at fair value.

³Total nonaccruing loans past due 90 days or more totaled $3.3 billion. Nonaccruing loans past due fewer than 90 days include modified nonaccrual loans reported as TDRs.

Notes to Consolidated Financial Statements (Unaudited)-Continued

A loan is considered impaired when it is probable that the Company will be unable to collect all amounts due, including principal and interest, according to the contractual terms of the agreement. Commercial nonaccrual loans greater than $4 million and certain consumer, residential, and commercial loans whose terms have been modified in a TDR are individually evaluated for impairment. Smaller-balance homogeneous loans that are collectively evaluated for impairment are not included in the following tables. Additionally, the tables below exclude student loans and residential mortgages that were guaranteed by government agencies and for which there was nominal risk of principal loss.

As of June 30, 2011

For the Three Months Ended
June 30, 2011

For the Six Months Ended
June 30, 2011

(Dollars in millions)

Unpaid
Principal
Balance

Amortized
Cost¹

Related
Allowance

Average
Amortized
Cost

Interest
Income
Recognized²

Average
Amortized
Cost

Interest
Income
Recognized²

Impaired loans with no related allowance recorded:

Commercial loans:

Commercial & industrial

$109

$100

$102

$103

Commercial real estate

Commercial construction

102

Total commercial loans

258

213

264

268

Impaired loans with an allowance recorded:

Commercial loans:

Commercial & industrial

130

Commercial real estate

169

138

154

136

Commercial construction

394

300

104

321

356

Total commercial loans

660

524

165

563

622

Residential loans:

Residential mortgages - nonguaranteed

2,860

2,488

283

2,445

2,455

Home equity products

521

488

487

447

Residential construction

228

188

191

195

Total residential loans

3,609

3,164

397

3,123

3,097

Consumer loans:

Other direct

Total impaired loans

$4,540

$3,914

$564

$3,963

$31

$3,998

$62

¹Amortized cost reflects charge-offs that have been recognized plus other amounts that have been applied to reduce the net book balance.

²Of the interest income recognized for the three and six months ended June 30, 2011, cash basis interest income was $7 million and $13 million, respectively.


	As of December 31, 2010
(Dollars in millions)	Unpaid Principal Balance		Amortized Cost¹		Related Allowance
Impaired loans with no related allowance recorded:
Commercial loans:
Commercial & industrial		$86		$67		$-
Commercial real estate		110		86		-
Commercial construction		67		52		-

Total commercial loans		263		205		-
Impaired loans with an allowance recorded:
Commercial loans:
Commercial & industrial		123		96		18
Commercial real estate		103		81		19
Commercial construction		673		524		138

Total commercial loans		899		701		175
Residential loans:
Residential mortgages - nonguaranteed		2,785		2,467		309
Home equity products		503		503		93
Residential construction		226		196		26

Total residential loans		3,514		3,166		428
Consumer loans:
Other direct		11		11		2

Total impaired loans		$4,687		$4,083		$605

¹Amortized cost reflects charge-offs that have been recognized plus other amounts that have been applied to reduce net book balance.

Notes to Consolidated Financial Statements (Unaudited)-Continued

Included in the impaired loan balances above were $2.6 billion and $2.5 billion of accruing TDRs at June 30, 2011 and December 31, 2010, respectively, of which 86% and 85% were current, respectively. See Note 1, “Significant Accounting Policies,” to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 for further information regarding the Company’s loan impairment policy.

At June 30, 2011 and December 31, 2010, the Company had $21 million and $15 million, respectively, in commitments to lend additional funds to debtors owing receivables whose terms have been modified in a TDR.

Nonperforming assets at June 30, 2011 and December 31, 2010 are shown in the following table:


(Dollars in millions)	June 30, 2011		December 31, 2010
Nonperforming Assets
Nonaccrual/NPLs:
Commercial loans:

Commercial & industrial¹		$537		$584
Commercial real estate		399		342
Commercial construction		627		961
Residential loans:

Residential mortgages - nonguaranteed²		1,412		1,543
Home equity products		335		355
Residential construction		266		290
Consumer loans:
Other direct		9		10
Indirect		25		25

Total nonaccrual/NPLs		3,610		4,110

OREO³		483		596
Other repossessed assets		11		52

Total nonperforming assets		$4,104		$4,758

¹Includes $4 million of loans carried at fair value at June 30, 2011 and December 31, 2010, respectively.

²Includes $23 million and $24 million of loans carried at fair value at June 30, 2011 and December 31, 2010, respectively.

³Does not include foreclosed real estate related to loans insured by the FHA or the VA. Proceeds due from the FHA and the VA are recorded as a receivable in other assets until the funds are received and the property is conveyed. The receivable amount related to proceeds due from FHA or the VA totaled $175 million and $195 million at June 30, 2011 and December 31, 2010, respectively.

Concentrations of Credit Risk

The Company does not have a significant concentration of risk to any individual client except for the U.S. government and its agencies. However, a geographic concentration arises because the Company operates primarily in the Southeastern and Mid-Atlantic regions of the U.S. SunTrust engages in limited international banking activities. The Company’s total cross-border outstanding loans were $383 million and $446 million at June 30, 2011 and December 31, 2010, respectively.

The major concentrations of credit risk for the Company arise by collateral type in relation to loans and credit commitments. The only significant concentration that exists is in loans secured by residential real estate. At June 30, 2011, the Company owned $45.0 billion in residential loans, representing 39% of total LHFI, and had $13.2 billion in commitments to extend credit on home equity lines and $7.2 billion in mortgage loan commitments. Of the residential loans owned at June 30, 2011, 10% were guaranteed by a federal agency or a GSE. At December 31, 2010, the Company owned $46.5 billion in residential real estate loans, representing 40% of total LHFI, and had $13.6 billion in commitments to extend credit on home equity lines and $9.2 billion in mortgage loan commitments. Of the residential loans owned at December 31, 2010, 10% were guaranteed by a federal agency or a GSE.

Notes to Consolidated Financial Statements (Unaudited)-Continued

Included in the residential mortgage portfolio were $16.7 billion and $17.6 billion of mortgage loans at June 30, 2011 and December 31, 2010, respectively, that were not covered by mortgage insurance and whose terms, such as an interest only feature, a high LTV ratio, or a junior lien position, may increase the Company’s exposure to credit risk and result in a concentration of credit risk. Of these mortgage loans, $12.1 billion and $13.2 billion were interest only loans at origination, primarily with a ten year interest only period, including $1.9 billion and $2.0 billion, respectively, of loans that have since been modified into fully amortizing products.

Note 4 - Allowance for Credit Losses

The allowance for credit losses consists of the ALLL and the reserve for unfunded commitments. Activity in the allowance for credit losses is summarized in the table below:

2011

Three Months Ended
June 30

Six Months Ended
June 30

(Dollars in millions)

2011

2010

2011

2010

Balance at beginning of period

$2,908

$3,276

$3,032

$3,235

Provision for loan losses

395

702

846

1,579

Benefit for unfunded commitments

(3)

(40)

(7)

(55)

Loan charge-offs

(563)

(768)

(1,178)

(1,630)

Loan recoveries

102

Balance at end of period

$2,795

$3,216

$2,795

$3,216

Components:

ALLL

$2,744

$3,156

Unfunded commitments reserve¹

Allowance for credit losses

$2,795

$3,216

¹The unfunded commitments reserve is separately recorded in other liabilities in the Consolidated Balance Sheets.

Activity in the ALLL by segment is presented in the tables below:


	Three Months Ended June 30, 2011
(Dollars in millions)	Commercial		Residential		Consumer		Total
Balance at beginning of period		$1,255		$1,440		$159		$2,854
Provision for loan losses		124		252		19		395
Loan charge-offs		(220)		(303)		(40)		(563)
Loan recoveries		41		6		11		58

Balance at end of period		$1,200		$1,395		$149		$2,744


	Three Months Ended June 30, 2010
(Dollars in millions)	Commercial		Residential		Consumer		Total
Balance at beginning of period		$1,399		$1,590		$187		$3,176
Provision for loan losses		270		413		19		702
Loan charge-offs		(251)		(470)		(47)		(768)
Loan recoveries		29		5		12		46

Balance at end of period		$1,447		$1,538		$171		$3,156

Notes to Consolidated Financial Statements (Unaudited)-Continued

Six Months Ended June 30, 2011

(Dollars in millions)

Commercial

Residential

Consumer

Total

Balance at beginning of period

$1,303

$1,498

$173

$2,974

Provision for loan losses

232

574

846

Loan charge-offs

(405)

(688)

(85)

(1,178)

Loan recoveries

102

Balance at end of period

$1,200

$1,395

$149

$2,744

Six Months Ended June 30, 2010

(Dollars in millions)

Commercial

Residential

Consumer

Total

Balance at beginning of period

$1,353

$1,592

$175

$3,120

Provision for loan losses

485

1,014

1,579

Loan charge-offs

(443)

(1,078)

(109)

(1,630)

Loan recoveries

Balance at end of period

$1,447

$1,538

$171

$3,156

As further discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, the ALLL is composed of specific allowances for certain nonaccrual loans and TDRs and general allowances grouped into loan pools based on similar characteristics. No allowance is required for loans carried at fair value. Additionally, the Company does not record an allowance for loan products that are guaranteed by government agencies, as there is nominal risk of principal loss. The Company’s LHFI portfolio and related ALLL at June 30, 2011 and December 31, 2010, respectively, is shown in the tables below:

00000000

As of June 30, 2011

Commercial

Residential

Consumer

Total

(Dollars in millions)

Carrying
Value

Associated
ALLL

Carrying
Value

Associated
ALLL

Carrying
Value

Associated
ALLL

Carrying
Value

Associated
ALLL

Individually evaluated

$737

$165

$3,164

$397

$13

$3,914

$564

Collectively evaluated

52,628

1,035

41,415

998

16,507

147

110,550

2,180

Total evaluated

53,365

1,200

44,579

1,395

16,520

149

114,464

2,744

LHFI at fair value

445

449

Total LHFI

$53,369

$1,200

$45,024

$1,395

$16,520

$149

$114,913

$2,744

As of December 31, 2010

Commercial

Residential

Consumer

Total

(Dollars in millions)

Carrying
Value

Associated
ALLL

Carrying
Value

Associated
ALLL

Carrying
Value

Associated
ALLL

Carrying
Value

Associated
ALLL

Individually evaluated

$906

$175

$3,166

$428

$11

$4,083

$605

Collectively evaluated

52,578

1,128

42,867

1,070

15,955

171

111,400

2,369

Total evaluated

53,484

1,303

46,033

1,498

15,966

173

115,483

2,974

LHFI at fair value

488

492

Total LHFI

$53,488

$1,303

$46,521

$1,498

$15,966

$173

$115,975

$2,974

Note 5 – Goodwill and Other Intangible Assets

Goodwill

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 or indicate that it is more likely than not that a goodwill impairment exists when the carrying amount of a reporting unit is zero or negative. No events have occurred or circumstances changed since the annual testing of the Company’s goodwill as of September 30, 2010 that caused interim testing of goodwill during the first six months of 2011.

Notes to Consolidated Financial Statements (Unaudited)-Continued

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


(Dollars in millions)	Retail & Commercial		Retail Banking		Diversified Commercial Banking		CIB		W&IM		Total
Balance, January 1, 2010		$5,739		$-		$-		$223		$357		$6,319
Intersegment transfers		(5,739)		4,854		928		(43)		-		-
Contingent consideration		-		-		-		-		4		4

Balance, June 30, 2010		$-&

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