Edgar Filing: SUNTRUST BANKS INC

Form 10-Q

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, 2006

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-08918

SUNTRUST BANKS, INC.

(Exact name of registrant as specified in its charter)

Georgia

58-1575035

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

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

(Address of principal executive offices) (Zip Code)

(404) 588-7711

(Registrant’s telephone number, including area code)

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

Yes x No ¨

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

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

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

Yes ¨ No x

At October 31, 2006, 354,140,744 shares of the Registrant’s Common Stock, $1.00 par value, were outstanding.

TABLE OF CONTENTS

PART I FINANCIAL INFORMATION


		Page
Item 1.	Financial Statements (Unaudited)	3-6
	Consolidated Statements of Income	3
	Consolidated Balance Sheets	4
	Consolidated Statements of Shareholders’ Equity	5
	Consolidated Statements of Cash Flow	6
	Notes to Consolidated Financial Statements	7-27
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28-67
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	67
Item 4.	Controls and Procedures	67-68

PART II OTHER INFORMATION

Item 1.	Legal Proceedings	68
Item 1A.	Risk Factors	68
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	69
Item 3.	Defaults Upon Senior Securities	69
Item 4.	Submission of Matters to a Vote of Security Holders	69
Item 5.	Other Information	69
Item 6.	Exhibits	70

SIGNATURES		71

PART I - FINANCIAL INFORMATION

The following unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X, and accordingly do not include all of the information and footnotes required by generally accepted accounting principles in the United States for complete financial statements. However, in the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary to comply with Regulation S-X have been included. Operating results for the three and nine months ended September 30, 2006 are not necessarily indicative of the results that may be expected for the full year 2006.

Item 1.

FINANCIAL STATEMENTS (UNAUDITED)

Consolidated Statements of Income


	Three Months Ended September 30				Nine Months Ended September 30
(In thousands, except per share data) (Unaudited)	2006		2005		2006		2005
Interest Income
Interest and fees on loans	$1,991,940		$1,552,639		$5,668,659		$4,280,443
Interest and fees on loans held for sale	188,002		123,000		529,577		304,878
Interest and dividends on securities available for sale
Taxable interest	256,491		255,482		771,091		785,036
Tax-exempt interest	9,988		8,930		29,066		26,404
Dividends¹	30,371		26,151		93,708		78,169
Interest on funds sold and securities purchased under agreements to resell	14,309		11,898		41,470		32,768
Other interest	34,388		18,574		93,718		48,271

Total interest income	2,525,489		1,996,674		7,227,289		5,555,969

Interest Expense
Interest on deposits	956,106		498,720		2,505,994		1,231,798
Interest on funds purchased and securities sold under agreements to repurchase	142,190		81,970		387,963		206,176
Interest on other short-term borrowings	16,903		24,860		60,117		64,250
Interest on long-term debt	258,898		234,463		774,039		661,815

Total interest expense	1,374,097		840,013		3,728,113		2,164,039

Net Interest Income	1,151,392		1,156,661		3,499,176		3,391,930
Provision for loan losses	61,568		70,393		146,730		128,760

Net interest income after provision for loan losses	1,089,824		1,086,268		3,352,446		3,263,170

Noninterest Income
Service charges on deposit accounts	194,262		198,348		572,092		575,727
Trust and investment management income	173,717		168,802		517,617		500,820
Retail investment services	55,544		52,257		168,974		160,024
Other charges and fees	113,347		117,341		339,677		340,974
Investment banking income	47,046		53,090		159,342		156,803
Trading account profits and commissions	20,404		41,837		103,461		117,702
Card fees	64,916		52,924		183,460		153,091
Mortgage production related income	50,336		65,833		169,952		110,068
Mortgage servicing related income	36,633		5,242		112,744		28,337
Net gain on sale of Bond Trustee business	112,759		—		112,759		—
Net gain on sale of RCM assets	—		3,508		—		23,382
Other income	81,783		75,285		231,582		197,948
Securities (losses)/gains, net	(91,816	)	(2,069	)	(85,854	)	(7,755	)

Total noninterest income	858,931		832,398		2,585,806		2,357,121

Noninterest Expense
Employee compensation	560,389		538,717		1,689,903		1,565,527
Employee benefits	113,933		93,616		378,457		324,883
Net occupancy expense	85,613		79,519		248,367		228,853
Outside processing and software	98,699		92,952		292,038		265,082
Equipment expense	50,249		50,083		147,804		154,544
Marketing and customer development	35,932		38,651		127,956		106,578
Amortization of intangible assets	25,792		29,737		78,922		90,772
Merger expense	—		12,104		—		92,104
Other expense	234,892		241,692		682,636		655,459

Total noninterest expense	1,205,499		1,177,071		3,646,083		3,483,802

Income before provision for income taxes	743,256		741,595		2,292,169		2,136,489
Provision for income taxes	207,668		230,821		681,052		667,721

Net Income	$535,588		$510,774		$1,611,117		$1,468,768

Average common shares - diluted (thousands)	365,121		363,854		364,322		363,547
Average common shares - basic (thousands)	361,805		359,702		361,009		359,020
Net income per average common share - diluted	$1.47		$1.40		$4.42		$4.04
Net income per average common share - basic	1.48		1.42		4.46		4.09
¹Includes dividends on common stock of The Coca-Cola Company	14,963		13,515		44,888		40,544

See notes to consolidated financial statements

Consolidated Balance Sheets


	As of
(Dollars in thousands) (Unaudited)	September 30 2006		December 31 2005
Assets
Cash and due from banks	$4,066,173		$4,659,664
Interest-bearing deposits in other banks	39,982		332,444
Funds sold and securities purchased under agreements to resell	1,147,423		1,313,498
Trading assets	3,675,917		2,811,225
Securities available for sale¹	25,553,320		26,525,821
Loans held for sale	11,501,646		13,695,613
Loans	121,237,394		114,554,895
Allowance for loan and lease losses	(1,087,316	)	(1,028,128	)

Net loans	120,150,078		113,526,767
Premises and equipment	1,917,318		1,854,527
Goodwill	6,903,001		6,835,168
Other intangible assets	1,120,102		1,122,967
Customers’ acceptance liability	16,772		11,839
Other assets	7,012,821		7,023,308

Total assets	$183,104,553		$179,712,841


Liabilities and Shareholders’ Equity
Noninterest-bearing consumer and commercial deposits	$22,813,455		$26,327,663
Interest-bearing consumer and commercial deposits	75,870,612		71,244,719

Total consumer and commercial deposits	98,684,067		97,572,382
Brokered deposits (CDs at fair value: $84,955 as of September 30, 2006; $0 as of December 31, 2005)	18,264,554		15,644,932
Foreign deposits	7,444,329		8,835,864

Total deposits	124,392,950		122,053,178

Funds purchased	5,926,570		4,258,013
Securities sold under agreements to repurchase	7,362,480		6,116,520
Other short-term borrowings	1,744,479		1,937,624
Long-term debt	17,477,276		20,779,249
Acceptances outstanding	16,772		11,839
Trading liabilities	1,611,648		1,529,325
Other liabilities	5,983,071		6,139,698

Total liabilities	164,515,246		162,825,446


Preferred stock, no par value; 50,000,000 shares authorized; 5,000 shares issued as of September 30, 2006; none issued as of December 31, 2005	500,000		—
Common stock, $1.00 par value	370,578		370,578
Additional paid in capital	6,735,458		6,761,684
Retained earnings	10,258,441		9,310,978
Treasury stock, at cost, and other	(453,934	)	(493,936	)
Accumulated other comprehensive income	1,178,764		938,091

Total shareholders’ equity	18,589,307		16,887,395

Total liabilities and shareholders’ equity	$183,104,553		$179,712,841


Common shares outstanding	363,868,470		361,984,193
Common shares authorized	750,000,000		750,000,000
Treasury shares of common stock	6,709,928		8,594,205

¹Includes net unrealized gains on securities available for sale	$1,915,277		$1,572,033

See notes to consolidated financial statements

Consolidated Statements of Shareholders’ Equity


(Dollars and shares in thousands)(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, 2005	$-	360,840		$370,578	$6,749,219		$8,118,710		($528,558	)	$1,276,950		$15,986,899
Net income	-	-		-	-		1,468,768		-		-		1,468,768
Other comprehensive income:
Change in unrealized gains (losses) on derivatives, net of taxes	-	-		-	-		-		-		(4,810	)	(4,810	)
Change in unrealized gains (losses) on securities, net of taxes	-	-		-	-		-		-		(132,921	)	(132,921	)
Change related to supplemental retirement benefits, net of taxes	-	-		-	-		-		-		(940	)	(940	)

Total comprehensive income													1,330,097
Cash dividends declared, $1.65 per share	-	-		-	-		(596,310	)	-		-		(596,310	)
Exercise of stock options and stock compensation element expense	-	2,109		-	11,375		-		114,899		-		126,274
Acquisition of treasury stock	-	(2,775	)	-	-		-		(196,395	)	-		(196,395	)
Performance and restricted stock activity	-	118		-	(1,791	)	-		7,258		-		5,467
Amortization of compensation element of performance and restricted stock	-	-		-	-		-		6,804		-		6,804
Issuance of stock for employee benefit plans	-	956		-	(40	)	-		54,816		-		54,776
Other activity	-	-		-	138		-		-		-		138

Balance, September 30, 2005	$-	361,248		$370,578	$6,758,901		$8,991,168		($541,176	)	$1,138,279		$16,717,750


Balance, January 1, 2006	$-	361,984		$370,578	$6,761,684		$9,310,978		($493,936	)	$938,091		$16,887,395
Net income	-	-		-	-		1,611,117		-		-		1,611,117
Other comprehensive income:
Change in unrealized gains (losses) on derivatives, net of taxes	-	-		-	-		-		-		26,052		26,052
Change in unrealized gains (losses) on securities, net of taxes	-	-		-	-		-		-		213,797		213,797
Change related to supplemental retirement benefits, net of taxes	-	-		-	-		-		-		824		824

Total comprehensive income													1,851,790
Cash dividends declared, $1.83 per share	-	-		-	-		(663,654	)	-		-		(663,654	)
Issuance of preferred stock	500,000	-		-	(7,300	)	-		-		-		492,700
Exercise of stock options and stock compensation element expense	-	2,596		-	11,518		-		162,532		-		174,050
Acquisition of treasury stock	-	(3,175	)	-	-		-		(234,373	)	-		(234,373	)
Performance and restricted stock activity	-	1,223		-	(25,959	)	-		21,934		-		(4,025	)
Amortization of compensation element of performance and restricted stock	-	-		-	-		-		12,561		-		12,561
Issuance of stock for employee benefit plans	-	1,037		-	(6,701	)	-		64,564		-		57,863
Issuance of stock for BancMortgage contingent consideration	-	203		-	2,216		-		12,784		-		15,000

Balance, September 30, 2006	$500,000	363,868		$370,578	$6,735,458		$10,258,441		($453,934	)	$1,178,764		$18,589,307

¹ Balance at September 30, 2006 includes $388,682 for treasury stock and $65,252 for compensation element of restricted stock.

Balance

at September 30, 2005 includes $511,956 for treasury stock and $29,220 for compensation element of restricted stock.

See notes to consolidated financial statements

Consolidated Statements of Cash Flow


	Nine Months Ended September 30
(Dollars in thousands) (Unaudited)	2006		2005
Cash Flows from Operating Activities:
Net income	$1,611,117		$1,468,768
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Net gain on sale of Bond Trustee business	(112,759	)	—
Net gain on sale of RCM assets	—		(23,382	)
Depreciation, amortization and accretion	596,566		584,364
Gain on sale of mortgage servicing rights	(65,957	)	—
Origination of mortgage servicing rights	(361,904	)	(254,914	)
Provisions for loan losses and foreclosed property	148,807		130,436
Amortization of compensation element of performance and restricted stock	12,561		6,804
Stock option compensation	19,982		19,797
Excess tax benefits from stock-based compensation	(27,642	)	—
Securities losses	85,854		7,755
Net gain on sale of assets	(36,029	)	(10,303	)
Originated and purchased loans held for sale	(40,751,497	)	(33,675,440	)
Sales and securitizations of loans held for sale	42,958,260		29,877,252
Net increase in other assets	(1,000,769	)	(589,638	)
Net (decrease)/increase in other liabilities	(108,450	)	675,510

Net cash provided by (used in) operating activities	2,968,140		(1,782,991	)


Cash Flows from Investing Activities:
Proceeds from maturities, calls and repayments of securities available for sale	2,565,839		3,848,784
Proceeds from sales of securities available for sale	2,921,411		4,223,635
Purchases of securities available for sale	(4,268,201	)	(6,161,953	)
Loan originations net of principal collected	(9,037,833	)	(11,759,534	)
Proceeds from sale of loans	2,206,936		267,848
Proceeds from sale of mortgage servicing rights	220,814		—
Capital expenditures	(219,597	)	(107,886	)
Proceeds from the sale of other assets	34,661		30,901
Other investing activities	—		4,167

Net cash used in investing activities	(5,575,970	)	(9,654,038	)


Cash Flows from Financing Activities:
Net increase in consumer and commercial deposits	1,119,740		2,361,556
Net increase in foreign and brokered deposits	1,228,087		8,013,591
Net increase in funds purchased and other short-term borrowings	2,721,372		1,457,775
Proceeds from the issuance of long-term debt	10,013		1,973,932
Repayment of long-term debt	(3,305,141	)	(1,714,001	)
Proceeds from the issuance of preferred stock	492,700		—
Proceeds from the exercise of stock options	159,416		107,313
Acquisition of treasury stock	(234,373	)	(196,395	)
Excess tax benefits from stock-based compensation	27,642		—
Dividends paid	(663,654	)	(596,310	)

Net cash provided by financing activities	1,555,802		11,407,461

Net decrease in cash and cash equivalents	(1,052,028	)	(29,568	)
Cash and cash equivalents at beginning of period	6,305,606		5,488,939

Cash and cash equivalents at end of period	$5,253,578		$5,459,371


Supplemental Disclosures:
Interest paid	$3,677,381		$2,013,984
Income taxes paid	522,209		512,457
Income taxes refunded	11,661		3,629

See notes to consolidated financial statements

Notes to Consolidated Financial Statements (Unaudited)

Note 1 – Principles of Consolidation and Basis of Presentation

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

The consolidated interim financial statements of SunTrust are unaudited. The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“US GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could vary from these estimates. Certain reclassifications have been made to prior period amounts to conform to the current period presentation. These financial statements should be read in conjunction with the Annual Report on Form 10-K for the year ended December 31, 2005. 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, 2005.

Note 2 – Acquisitions/Dispositions

On September 29, 2006, SunTrust sold its Bond Trustee business unit to U.S. Bank, N.A. (“U.S. Bank”), for $113.8 million in cash. This transaction resulted in a gain of $112.8 million, which was recorded in the Consolidated Statements of Income as a component of noninterest income. This gain was partially offset by $1.0 million of costs primarily related to employee retention, the write-off of fixed assets, and system deconversion. The Company may realize an additional pre-tax gain of up to $16 million as a result of future contingent payments from U.S. Bank linked to business retention levels in the twelve month period following the completion of the sale. Approximately $21 billion in non-managed corporate trust assets were transferred to U.S. Bank, which contributed approximately $17 million of revenue for the nine month period ended September 30, 2006. The sale of the business, which was a part of the Wealth and Investment Management line of business, was part of an effort by the Company to modify its business mix to focus on its high-growth core business lines and market segments.

On July 28, 2006, AMA Holdings, Inc. (“AMA Holdings”), a 100%-owned subsidiary of SunTrust, exercised its right to call 23 minority member owned interests in AMA, LLC. The transaction resulted in $2.6 million of goodwill and $0.6 million of other intangibles related to client relationships which were both deductible for tax purposes. On January 28, 2006, AMA Holdings exercised its right to call 98 minority member owned interests in AMA, LLC, resulting in $6.9 million of goodwill and $4.5 million of other intangibles related to client relationships which were both deductible for tax purposes. During the second quarter of 2005, AMA Holdings exercised its right to call 41 minority member owned interests in AMA, LLC which resulted in $3.3 million of goodwill that was also deductible for tax purposes. As of September 30, 2006, AMA Holdings owned 913 member interests of AMA, LLC, and 315 member interests of AMA, LLC were owned by employees. There are 88 employee interests that may be called by

Notes to Consolidated Financial Statements (Unaudited)

AMA Holdings at its discretion, or put to AMA Holdings by the holders of the member interest, in accordance with the member agreement. The remaining 227 employee-owned interests may be subject to certain vesting requirements and may be put or called at certain dates in the future, in accordance with the member agreement.

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

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

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

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

On March 10, 2006, SunTrust paid $3.9 million to the former owners of SunAmerica Mortgage (“SunAmerica”) that was contingent on the performance of SunAmerica. This resulted in $3.9 million of goodwill that was deductible for tax purposes. On March 9, 2005, the Company paid $4.3 million to the former owners of SunAmerica that was contingent on the performance of SunAmerica. This resulted in $4.3 million of goodwill that was deductible for tax purposes. In 2003, SunTrust completed the acquisition of SunAmerica, one of the top mortgage lenders in Metro Atlanta.

On December 31, 2005, SunTrust sold its 100% interest in Carswell of Carolina, Inc., a full service insurance agency offering comprehensive insurance services to its clients, for cash totaling $10.9 million.

On March 31, 2005, SunTrust sold substantially all of the factoring assets of its factoring division, Receivables Capital Management (“RCM”), to an affiliate of CIT Group, Inc. The sale of approximately $238 million in net assets resulted in a gain of $30.0 million. This gain was partially offset by $10.1 million of expenses primarily related to the severance of RCM employees and the write-off of obsolete RCM financial systems and equipment. The net gain of $19.9 million was recorded in the Consolidated Statements of Income as a component of noninterest income. In the third quarter of 2005, an additional gain of $3.5 million was recorded due to the actual expense incurred for severance and the write-off of obsolete systems and equipment being less than what was estimated in the first quarter of 2005. As a result, the gain related to the RCM factoring asset sale totaled $23.4 million for the year ended December 31, 2005.

On January 27, 2005, AMA Holdings purchased the remaining 20% minority interest of Lighthouse Partners, LLC (“LHP”), a nonregistered limited liability company established to provide alternative investment strategies for clients. The transaction resulted

Notes to Consolidated Financial Statements (Unaudited)

in $39.8 million of goodwill and $11.1 million of other intangibles related to client relationships and noncompete agreements which were both deductible for tax purposes.

Note 3 – Accounting Developments

Accounting Policies Adopted

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 123 (Revised), “SFAS No. 123(R),” “Share-Based Payment.” This Statement replaces SFAS No. 123, “Accounting for Stock-Based Compensation,” and supersedes Accounting Practice Bulletin (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS No. 123(R) clarifies and expands the guidance of SFAS No. 123 in several areas, including measuring fair value, classifying an award as equity or as a liability, accounting for non-substantive vesting provisions, and accounting for forfeitures. Under the provisions of SFAS No. 123(R), the alternative to use APB Opinion No. 25’s intrinsic value method of accounting that was provided in SFAS No. 123, as originally issued, is eliminated, and entities are required to measure and record compensation expense in share-based payment transactions at fair value, reduced by expected forfeitures. In accordance with SFAS No. 123(R), the Company changed its policy of recognizing forfeitures as they occur and began estimating the number of awards for which it is probable service will be rendered. The estimate of forfeitures adjusts the initial recognition of compensation expense and the estimated forfeitures will be subsequently adjusted through compensation expense to reflect actual forfeitures.

Effective January 1, 2002, the Company adopted the fair value recognition provision of SFAS No. 123, prospectively, and began expensing the cost of stock options. As of December 31, 2005, all compensation expense related to awards granted prior to January 1, 2002 had been recognized. The Company adopted SFAS No. 123(R) effective January 1, 2006 using the modified prospective application method. The modified prospective application method applies to new awards, to any outstanding liability awards, and to awards modified, repurchased, or cancelled after January 1, 2006. In conjunction with the adoption of SFAS No. 123(R), the Company refined its measurement of the expected stock price volatility calculation by using a daily average calculation. The adoption of this standard did not have a material impact on the Company’s financial position or results of operations.

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections - a replacement of APB Opinion No. 20 and FASB Statement No. 3.” SFAS No. 154 changes the requirements for reporting and accounting for a change in accounting principle. This statement requires retrospective application to prior period financial statements for changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. The provisions of APB Opinion No. 20, “Accounting Changes,” that relate to reporting the correction of an error in previously issued financial statements and a change in accounting estimate are carried forward in SFAS No. 154. SFAS No. 154 also carries forward the provisions of SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements - an amendment of APB Opinion No. 28,” that govern the reporting of accounting changes in interim financial statements. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company adopted the provisions of SFAS No. 154 on January 1, 2006. The adoption of this Statement did not impact the Company’s financial position or results of operations.

In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments – an amendment of FASB Statements No. 133 and 140.” SFAS No. 155 requires companies to evaluate interests in securitized financial assets to determine whether they are freestanding derivatives or hybrid instruments that contain embedded derivatives requiring bifurcation from the

Notes to Consolidated Financial Statements (Unaudited)

host contract. SFAS No. 155 also permits companies to measure certain hybrid financial instruments at fair value in their entirety if they contain embedded derivatives that would otherwise require bifurcation in accordance with SFAS No. 133. The election may be made on an instrument-by-instrument basis and is irrevocable. Additionally, the Derivative Implementation Group (“DIG”) issued DIG Issues B38 and B39 in June 2005, which both clarify whether certain options embedded in debt instruments require bifurcation under SFAS No. 133. SunTrust adopted SFAS No. 155 and DIG Issues B38 and B39 as of January 1, 2006. The adoption of these pronouncements did not have a material impact on the Company’s financial position or results of operations.

In April 2006, the FASB issued FASB Staff Position (“FSP”) No. FIN 46(R)-6, “Determining the Variability to Be Considered in Applying FASB Interpretation No. (“FIN”) 46(R).” The FSP states that an evaluation of the design of the entity should be the single method used to understand variability when applying FIN 46(R) as opposed to alternative methods used to measure the amount of variability. This FSP introduces two steps to analyze the design of the entity and to determine the variability. Step one requires an analysis of the nature of the risks in the entity including credit risk, interest rate risk, foreign currency exchange risk, commodity price risk, equity price risk, and operations risk. Step two requires a determination of the purpose for which the entity is created and determination of the variability the entity is designed to create and pass along to its interest holders. Although this is a new approach, the conclusions will often be the same under the guidance of this FSP as those reached using other approaches. This FSP is to be applied on a prospective basis beginning July 1, 2006, to all entities that an enterprise becomes involved with and to all entities previously required to be analyzed under FIN 46(R) when a reconsideration event has occurred. The impact of adopting this FSP did not have an impact on the Company’s financial position and results of operations.

Recently Issued and Pending Accounting Pronouncements

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

In July 2006, the FASB issued FIN 48, “Accounting for Uncertainty in Income Taxes.” This Interpretation provides a two-step approach for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return and may result in companies revising their threshold for recognition of tax benefits that have some degree of uncertainty. FIN 48, which interprets SFAS No. 109, “Accounting for Income Taxes”, also addresses the accrual of any interest and penalties related to tax uncertainties and requires additional tax related disclosures. FIN 48 is effective beginning January 1, 2007 for calendar year companies. SunTrust is currently assessing its tax positions under the requirements of FIN 48 as part of its process to adopt FIN 48 beginning January 1, 2007.

In July 2006, the FASB issued FSP No. FAS 13-2, “Accounting for a Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease Transaction.” The Internal Revenue Service (“IRS”) has challenged

Notes to Consolidated Financial Statements (Unaudited)

companies on the timing and amount of tax deductions generated by certain leveraged lease transactions, commonly referred to as Lease-In, Lease-Out transactions (“LILOs”) and Sale-In, Lease-Out transactions (“SILOs”). As a result, some companies have settled with the IRS, resulting in a change to the estimated timing of cash flows and income on these types of leases. FSP No. FAS 13-2 indicates that a change in the timing or projected timing of the realization of tax benefits on a leveraged lease transaction requires the lessor to recalculate that lease. Upon adoption, changes in the net investment as a result of a recalculation should be recorded in retained earnings as a cumulative effect of a change in accounting principle. This FSP is effective January 1, 2007 for calendar year companies. The Company believes that its tax treatment of certain investments in LILO and SILO leveraged lease transactions is appropriate based on its interpretation of the tax regulations and legal precedents; however, a court or other judicial authority could disagree. In January 2007, the Company estimates that it will recognize a one-time after-tax charge to beginning retained earnings of $20 million—$30 million related to a change in the timing of its lease cash flows. An amount approximating this one-time charge will be accreted into income on an effective yield basis over the remaining terms of the affected leases.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which clarifies how companies should measure fair value when companies are required by US GAAP to use a fair value measure for recognition or disclosure. SFAS No. 157 establishes a common definition of fair value, it establishes a framework for measuring fair value in US GAAP, and it expands disclosures about fair value measurements to eliminate differences in current practice that exist in measuring fair value under the existing accounting standards. The definition of fair value in SFAS No. 157 retains the notion of exchange price; however, it focuses on the price that would be received to sell the asset or paid to transfer the liability (an exit price), rather than the price that would be paid to acquire the asset or received to assume the liability (an entry price). Under SFAS No. 157, a fair value measure should reflect all of the assumptions that market participants would use in pricing the asset or liability, including assumptions about the risk inherent in a particular valuation technique, the effect of a restriction on the sale or use of an asset, and the risk of nonperformance. To increase consistency and comparability in fair value measures, SFAS No. 157 establishes a three-level fair value hierarchy to prioritize the inputs used in valuation techniques between observable inputs that reflect quoted prices in active markets, inputs other than quoted prices with observable market data, and unobservable data (a company’s own data). SFAS No. 157 requires disclosures detailing (1) the extent to which companies measure assets and liabilities at fair value, (2) the methods and assumptions used to measure fair value, and (3) the effect of fair value measurements on earnings. SFAS No. 157 is effective January 1, 2008 for calendar year companies. SunTrust is in the process of evaluating the impact that this Statement will have on the Company’s financial position and results of operations.

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R).” SFAS No. 158 requires companies to fully recognize an asset or liability for the overfunded or underfunded status of their benefit plans in the statement of financial position. As a result, SunTrust will record its net funded position related to its retirement benefit plans, supplemental retirement benefits plan and other postretirement benefits on the Consolidated Balance Sheets with an offsetting impact, net of tax, to beginning accumulated other comprehensive income (“AOCI”). SFAS No. 158 also requires that previously disclosed but unrecognized actuarial gains and losses, unrecognized prior service costs and credits, and any transition assets or obligations remaining from the initial application of SFAS No. 87 or SFAS No. 106 be recognized at adoption as a component of shareholders’ equity in AOCI, net of tax. Subsequent to adoption, these amounts will be amortized into income and become a component of net benefit cost. SFAS No. 158 eliminates a company’s ability to select a date to measure plan assets and obligations that is prior to its year-end balance date and requires all companies to measure plan assets and benefit obligations as of their balance sheet dates effective for years ending after December 15,

Notes to Consolidated Financial Statements (Unaudited)

2008. SunTrust’s measurement date for plan assets and obligations is its year-end balance sheet date of December 31. The disclosure requirements of SFAS No. 132(R) are expanded by SFAS No. 158 to include disclosure of additional information about certain effects on net periodic benefit cost in the upcoming fiscal year that arise from delayed recognition of actuarial gains and losses, prior service costs and credits, and unrecognized transition assets and obligations. The provisions of SFAS No. 158 requiring recognition of a company’s funded status are to be applied prospectively beginning December 31, 2006. Upon adoption, SunTrust estimates the impact, net of tax, will be a reduction to AOCI of $300 million to $400 million, primarily relating to unrecognized actuarial losses.

In September 2006, the SEC staff issued Staff Accounting Bulletin (“SAB”) No. 108 to address the diversity in practice in quantifying financial statement misstatements and the potential impact under current practice for the accumulation of improper amounts on the balance sheet. In SAB No. 108, the SEC establishes a “dual approach” for quantifying financial statement errors by requiring evaluation of the effect on both the current income statement, including reversing the effect of prior year misstatements, as well as an evaluation of the effect on the period end balance sheet. SAB No. 108 is effective for the year ended December 31, 2006. SAB No. 108 allows public companies to record the cumulative effect of initially applying the “dual approach” in the first year by recording the necessary correcting adjustments to the carrying values of assets and liabilities as of the beginning of 2006 with the offsetting adjustment recorded to the opening balance of retained earnings. Additionally, the use of the “cumulative effect” transition method requires detailed disclosure of the nature and amount of each individual error being corrected through the cumulative adjustment and how and when it arose. SunTrust does not expect the issuance of SAB No. 108 to have an impact on the Company’s financial position and results of operations.

In September 2006, the EITF reached a consensus on EITF Issue No. 06-4, “Postretirement Benefits Associated with Split-Dollar Life Insurance.” This Issue clarifies the accounting for endorsement split-dollar life insurance arrangements that provide a benefit to an employee that is not limited to the employee’s active service period. This Issue concluded that an employer should recognize a liability for future benefits based on the substantive agreement with the employee since the postretirement benefit obligation is not effectively settled through the purchase of the endorsement split-dollar life insurance policy. This Issue is effective for SunTrust beginning January 1, 2008 and any resulting adjustment will be recorded as either a cumulative effect adjustment or as a change in accounting principle through retrospective application to all prior periods. SunTrust does not expect this Issue to have a material impact on its financial position and results of operations.

In September 2006, the EITF reached a consensus on EITF Issue No. 06-5, “Accounting for Purchases of Life Insurance – Determining the Amount That Could Be Realized in Accordance with FASB Technical Bulletin No. 85-4, Accounting for Purchases of Life Insurance.” This Issue clarifies how a company should determine “the amount that could be realized” from a life insurance contract, which is the measurement amount for the asset in accordance with Technical Bulletin 85-4; and requires policyholders to determine the amount that could be realized under a life insurance contract assuming individual policies are surrendered, unless all policies are required to be surrendered as a group. This Issue is effective for SunTrust on January 1, 2007 and any resulting adjustment may be recorded as either a cumulative effect adjustment or as a change in accounting principle through retrospective application to all prior periods. SunTrust does not expect this Issue to have a material impact on its financial position and results of operations.

Notes to Consolidated Financial Statements (Unaudited)

Note 4 – Allowance for Loan and Lease Losses

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


	Three Months Ended September 30				% Change		Nine Months Ended September 30				% Change
(Dollars in thousands)	2006		2005		% Change		2006		2005		% Change
Balance at beginning of period	$1,061,862		$1,036,173		2.5		$1,028,128		$1,050,024		(2.1	)
Provision for loan losses	61,568		70,393		(12.5	)	146,730		128,760		14.0
Loan charge-offs	(63,119	)	(104,614	)	(39.7	)	(173,034	)	(235,509	)	(26.5	)
Loan recoveries	27,005		27,903		(3.2	)	85,492		86,580		(1.3	)

Balance at end of period	$1,087,316		$1,029,855		5.6		$1,087,316		$1,029,855		5.6

Note 5 – Intangible Assets

Under the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets,” goodwill is tested for impairment on an annual basis and as events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. In the fourth quarter of 2005, the Company completed its 2005 annual review as of September 30, 2005, and determined there was no impairment of goodwill as of this date. No events or circumstances have occurred during the year that would more likely than not reduce the fair value of a reporting unit below its carrying value. In the fourth quarter, the Company will complete its 2006 annual review as of September 30, 2006. The changes in the carrying amount of goodwill by reportable segment for the nine months ended September 30, 2006 and 2005 are as follows:


(Dollars in thousands)	Retail		Commercial		Corporate and Investment Banking		Mortgage		Wealth and Investment Management		Corporate Other and Treasury		Total
Balance, January 1, 2005	$4,875,347		$1,267,452		$148,362		$243,808		$260,905		$10,139		$6,806,013
NCF purchase adjustments	(1,720	)	(6,066	)	(886	)	(168	)	(693	)	(2,348	)	(11,881	)
Purchase of Lighthouse Partners minority shares	—		—		—		—		39,801		—		39,801
SunAmerica contingent consideration	—		—		—		4,349		—		—		4,349
Purchase of AMA, LLC minority shares	—		—		—		—		3,349		—		3,349

Balance, September 30, 2005	$4,873,627		$1,261,386		$147,476		$247,989		$303,362		$7,791		$6,841,631


Balance, January 1, 2006	$4,873,158		$1,261,363		$147,470		$247,985		$297,857		$7,335		$6,835,168
NCF purchase adjustments ¹	26,648		3,480		124		571		218		(481	)	30,560
BancMortgage contingent consideration	—		—		—		22,500		—		—		22,500
Purchase of AMA, LLC minority shares	—		—		—		—		9,534		—		9,534
SunAmerica contingent consideration	—		—		—		3,906		—		—		3,906
Prime Performance contingent consideration	1,333		—		—		—		—		—		1,333

Balance, September 30, 2006	$4,901,139		$1,264,843		$147,594		$274,962		$307,609		$6,854		$6,903,001

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

Notes to Consolidated Financial Statements (Unaudited)

The changes in the carrying amounts of other intangible assets for the nine months ended September 30, 2006 and 2005 are as follows:


(Dollars in thousands)	Core Deposit Intangible		Mortgage Servicing Rights		Other		Total
Balance, January 1, 2005	$424,143		$482,392		$154,916		$1,061,451
Amortization	(76,125	)	(123,839	)	(14,647	)	(214,611	)
Servicing rights originated	—		254,914		—		254,914
Lighthouse Partners client relationships and noncompete agreements	—		—		11,119		11,119

Balance, September 30, 2005	$348,018		$613,467		$151,388		$1,112,873


Balance, January 1, 2006	$324,743		$657,604		$140,620		$1,122,967
Amortization	(64,667	)	(139,975	)	(14,255	)	(218,897	)
Servicing rights originated	—		361,904		—		361,904
Community Bank of Florida branch acquisition	1,085		—		—		1,085
Reclass investment to trading assets	—		—		(1,050	)	(1,050	)
Purchase of AMA, LLC minority shares	—		—		5,072		5,072
Sale/securitization of mortgage servicing rights	—		(155,210	)	—		(155,210	)
Issuance of noncompete agreement	—		—		4,231		4,231

Balance, September 30, 2006	$261,161		$724,323		$134,618		$1,120,102

The estimated amortization expense for intangible assets, excluding amortization of mortgage servicing rights, for the full year 2006 and the subsequent years is as follows:


(Dollars in thousands)	Core Deposit Intangible	Other	Total
Full year 2006	$84,216	$19,036	$103,252
2007	68,959	18,936	87,895
2008	53,616	17,007	70,623
2009	36,529	13,787	50,316
2010	28,781	12,196	40,977
Thereafter	53,727	67,911	121,638

Total	$325,828	$148,873	$474,701

Note 6 – Securitizations

In September 2006, the Company sold $154.9 million of leveraged commercial loans and high yield bonds to a securitization vehicle, in exchange for net proceeds of $155.5 million. A pre-tax gain of $0.6 million was recognized as a result of the sale of these loans. In addition, the Company received approximately $5.7 million in fee income for services performed related to the closing of the securitization. The Company holds an interest in the securitization vehicle that is classified on the Consolidated Balance Sheets as a security available for sale and has a fair value of $5.9 million at September 30, 2006. Fair value was determined using the present value of future cash flows modeling approach.

In May 2006, the Company sold residential mortgage loans in a securitization transaction in exchange for net proceeds of $496.5 million and retained interests of $1.1 million. The Company continues to perform servicing for the underlying mortgage loans. Servicing assets of approximately $9 million were recorded as a result of the transaction. A pre-tax gain of $1.1 million was also recognized as a result of the transaction. At September 30, 2006, the retained interests were classified on the Consolidated

Notes to Consolidated Financial Statements (Unaudited)

Balance Sheets as securities available for sale and were valued at $1.1 million based on dealer prices.

In May 2006, the Company sold leveraged commercial loans and high yield bonds to a securitization vehicle in exchange for net proceeds of $297.9 million. A pre-tax gain of $0.6 million was recognized as a result of the sale. In addition, the Company received $7.1 million in fee income for services performed related to the closing of the securitization. The Company holds an interest in the securitization vehicle that is classified on the Consolidated Balance Sheets as a trading asset and has a fair value of $6.7 million at September 30, 2006. Fair value was determined using the present value of future cash flows modeling approach.

In March 2006, the Company securitized $750.2 million of student loans in exchange for net proceeds totaling $750.1 million and retained interests of $27.6 million. The Company recognized a pre-tax gain of $2.5 million. The retained interests are classified on the Consolidated Balance Sheets as securities available for sale and the fair value as of September 30, 2006 was $29.1 million. Fair value was derived using the following assumptions: a discount rate of 9% and prepayment speed of 15% for 2006 and 6% for each year thereafter resulting in a weighted average life of six years. In addition, the Company is the master servicer for the securitized student loans and subservices its servicing responsibilities to an external third party.

In March 2006, the Company securitized and sold $60.0 million of excess mortgage servicing rights in exchange for net proceeds of $74.0 million and retained interests of $10.4 million. A pre-tax gain of $24.4 million was recognized as a result of the transaction. At September 30, 2006, the retained interests were classified on the Consolidated Balance Sheets as securities available for sale and were valued at $14.6 million based on dealer prices. The Company continues to perform servicing for the underlying mortgage loans.

During the first quarter of 2006, the Company sold leveraged commercial loans to a securitization vehicle in exchange for net proceeds of $234.4 million. A pre-tax gain of $1.2 million was recognized as a result of the transaction. In addition, the Company recognized $5.8 million in fee income for services performed related to the closing of the securitization. Interests retained from the securitization are classified on the Consolidated Balance Sheets as securities available for sale and the fair value as of September 30, 2006 was $3.7 million. Fair value was determined based on prices paid for recent market trades.

Note 7 – Employee Benefits

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

Shares of restricted stock may be granted to employees and directors and typically vest over three years. Restricted stock grants may be subject to one or more objective employment, performance or other forfeiture conditions as established by the Committee at

Notes to Consolidated Financial Statements (Unaudited)

the time of grant. Any shares of restricted stock that are forfeited will again become available for issuance under the Plan. An employee or director has the right to vote the shares of restricted stock after grant until they are forfeited or vested. Compensation cost for restricted stock is equal to the fair market value of the shares at the date of the award and is amortized to compensation expense over the vesting period.

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

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

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

The weighted average fair values of options granted during the nine months ended September 30, 2006 and 2005 were $16.49 and $8.10 per share, respectively. The increase in fair value was due to the change in methodology used to calculate the expected stock price volatility. 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
	2006		2005
Expected dividend yield	3.18	%	2.81	%
Expected stock price volatility	25.73		12.00
Risk-free interest rate (weighted average)	4.51		3.62
Expected life of options	6 years		5 years

Notes to Consolidated Financial Statements (Unaudited)

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


	Stock Options				Performance and Restricted Stock
(Dollars in thousands except per share data)	Shares		Price Range	Weighted- Average Exercise Price	Shares		Deferred Compensation		Weighted- Average Grant Price
Balance, December 31, 2005	21,790,455		$14.18 - $76.50	$62.46	2,326,969		$26,222		$34.58
Granted	949,300		71.03 - 78.39	71.07	818,907		59,024		72.08
Exercised/vested	(2,675,214	)	14.18 -73.19	52.36	(1,060,823	)	—		20.50
Cancelled/expired/forfeited	(398,723	)	14.18 - 73.19	70.84	(127,621	)	(7,433	)	58.24
Amortization of compensation element	—		—	—	—		(12,561	)	—

Balance, September 30, 2006	19,665,818		$14.56 - $78.39	$64.08	1,957,432		$65,252		$56.36

Exercisable, September 30, 2006	12,353,748			$58.88

Available for Additional Grant, September 30, 2006¹	9,626,216

¹	Includes 1.8 million shares available to be issued as Restricted Stock

The following table presents information on stock options by ranges of exercise price at September 30, 2006:

(Dollars in thousands except per share data)


	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number Outstanding at September 30, 2006	Weighted- Average Exercise Price	Weighted- Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value	Number Exercisable at September 30, 2006	Weighted- Average Exercise Price	Weighted- Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value
$14.56 to $49.46	1,240,502	$41.79	3.84	$44,029	1,240,502	$41.79	3.84	$44,029
$49.75 to $64.57	8,014,910	56.51	5.15	166,455	8,014,910	56.51	5.15	166,455
$64.73 to $78.39	10,410,406	72.56	6.66	49,158	3,098,336	71.87	3.36	16,770

	19,665,818	$64.08	5.87	$259,642	12,353,748	$58.88	4.57	$227,254

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the third quarter of 2006 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on September 30, 2006. This amount changes based on the fair market value of the Company’s stock. Total intrinsic value of options exercised for the nine months ended September 30, 2006 and 2005 was $63.4 million and $65.9 million, respectively. Total fair value of performance and restricted shares vested in the nine months ended September 30, 2006 was $21.8 million, net of tax. Total fair value of performance and restricted shares vested in the nine months ended September 30, 2005 was $10.7 million, net of tax.

As of September 30, 2006, there was $94.0 million of unrecognized stock-based compensation expense related to nonvested stock options, performance and restricted stock, which is expected to be recognized over a weighted average period of 1.92 years.


	Three Months Ended September 30		Nine Months Ended September 30
(In thousands)	2006	2005	2006	2005
Stock-based compensation expense:
Stock options	$6,060	$6,163	$17,840	$19,470
Performance and restricted stock	5,407	1,678	12,561	6,804

Total stock-based compensation expense	$11,467	$7,841	$30,401	$26,274

Notes to Consolidated Financial Statements (Unaudited)

The recognized tax benefit amounted to $4.4 million and $3.0 million for the three months ended September 30, 2006 and 2005, respectively. The recognized tax benefit amounted to $11.6 million and $10.0 million for the nine months ended September 30, 2006 and 2005, respectively.

The Pension Protection Act of 2006, which makes significant changes in funding rules, increased the maximum tax deductible contribution limits for 2006 and 2007. In response, SunTrust contributed a voluntary $100 million to its qualified retirement plan (“Retirement Benefits” Plan) in the third quarter of 2006 and subsequently remeasured plan assets and liabilities as of August 31, 2006. This additional contribution represented approximately 5% of plan assets, and the subsequent remeasurement of plan assets and liabilities represented an impact of approximately 2.5% of the projected benefit obligation. The Company had also contributed $82 million to its Retirement Benefits Plan in the first quarter of 2006 related to the 2006 plan.

Anticipated employer contributions/benefit payments for the full year 2006 have been revised to be $7.4 million for the Supplemental Retirement Benefit plans. For the third quarter of 2006, the actual contributions/benefit payments totaled $1.0 million. Actual contributions/benefit payments year to date are $6.1 million.


	Three Months Ended September 30
	2006					2005
(Dollars in thousands)	Retirement Benefits		Supplemental Retirement Benefits	Other Postretirement Benefits		Retirement Benefits		Supplemental Retirement Benefits	Other Postretirement Benefits
Service cost	$18,110		$620	$782		$15,759		$530	$767
Interest cost	25,635		1,670	2,736		23,415		1,424	2,533
Expected return on plan assets	(41,388	)	—	(2,037	)	(38,778	)	—	(2,277	)
Amortization of prior service cost	(120	)	883	—		(124	)	630	—
Recognized net actuarial loss	12,416		1,349	2,485		9,218		1,550	1,766
Amortization of initial transition obligation	—		—	582		—		—	588
Partial settlement	—		—	—		—		24	—

Net periodic benefit cost	$14,653		$4,522	$4,548		$9,490		$4,158	$3,377


	Nine Months Ended September 30
	2006					2005
(Dollars in thousands)	Retirement Benefits		Supplemental Retirement Benefits	Other Postretirement Benefits		Retirement Benefits		Supplemental Retirement Benefits	Other Postretirement Benefits
Service cost	$54,983		$1,859	$2,339		$48,018		$1,657	$2,309
Interest cost	76,258		5,009	8,184		70,505		4,429	7,491
Expected return on plan assets	(122,069	)	—	(6,094	)	(116,656	)	—	(6,779	)
Amortization of prior service cost	(360	)	2,648	—		(373	)	1,807	—
Recognized net actuarial loss	40,245		4,049	7,434		27,336		4,531	5,082
Amortization of initial transition obligation	—		—	1,741		—		—	1,751
Participant information adjustment	—		—	—		(14,600	)	—	—
Partial settlement	312		54	—		—		8,056	—

Net periodic benefit cost	$49,369		$13,619	$13,604		$14,230		$20,480	$9,854

Note 8 – Preferred Stock

On September 12, 2006, the Company issued depositary shares representing an ownership interest in 5,000 shares of Series A Perpetual Preferred Stock, no par value and $100,000 liquidation preference per share (the “Series A Preferred Stock”). The Series A Preferred Stock has no stated maturity and will not be subject to any sinking fund or other obligation of the Company. Dividends on the Series A Preferred Stock, if declared, will accrue and be payable quarterly at a rate per annum equal to the greater of three-month

Notes to Consolidated Financial Statements (Unaudited)

LIBOR plus 0.53 percent, or 4.00 percent. Dividends on the shares initially will be cumulative. During the cumulative period, the Company will have an obligation to pay any unpaid dividends. However, dividends on the shares will automatically become non-cumulative immediately upon the effective date of an amendment to the Company’s articles of incorporation to eliminate the requirement that the Company’s preferred stock dividend be cumulative, and such amendment will be voted upon by the Company’s shareholders at their next annual meeting to be held in April 2007. During the non-cumulative dividend period, the Company will have no obligation to pay dividends that were undeclared and unpaid during the cumulative dividend period.

Shares of the Series A Preferred Stock have priority over the Company’s common stock with regard to the payment of dividends. As such, the Company may not pay dividends on or repurchase, redeem, or otherwise acquire for consideration shares of its common stock unless dividends for the Series A Preferred Stock have been declared for that period, and sufficient funds have been set aside to make payment.

On or after September 15, 2011, the Series A Preferred Stock will be redeemable at the Company’s option at a redemption price equal to $100,000 per share, plus any declared and unpaid dividends. Except in certain limited circumstances, the Series A Preferred Stock does not have any voting rights.

The Company incurred $7.3 million of issuance costs paid to external parties in this transaction, which were recorded as a reduction in net proceeds and charged to additional paid in capital.

Note 9 – Comprehensive Income

Comprehensive income for the three and nine months ended September 30, 2006 and 2005 was calculated as follows:


	Three Months Ended September 30			Nine Months Ended September 30
(Dollars in thousands)	2006	2005		2006	2005
Comprehensive income:
Net income	$535,588	$510,774		$1,611,117	$1,468,768
Other comprehensive income:
Change in unrealized gains (losses) on securities, net of taxes	382,508	(147,525	)	213,797	(132,921	)
Change in unrealized gains (losses) on derivatives, net of taxes	19,736	(12,158	)	26,052	(4,810	)
Change related to supplemental retirement benefits, net of taxes	—	—		824	(940	)

Total comprehensive income	$937,832	$351,091		$1,851,790	$1,330,097

The components of accumulated other comprehensive income were as follows:


(Dollars in thousands)	September 30 2006		December 31 2005
Unrealized net gain on available for sale securities	$1,185,614		$971,817
Unrealized net gain (loss) on derivative financial instruments	8,713		(17,339	)
Supplemental retirement benefits	(15,563	)	(16,387	)

Total accumulated other comprehensive income	$1,178,764		$938,091

Note 10 – Earnings Per Share Reconciliation

Net income is the same in the calculation of basic and diluted EPS. Equivalent shares of 3,392 and 9.6 million related to stock options for the periods ended September 30, 2006 and 2005, respectively, were excluded from the computation of diluted EPS because they would have been antidilutive. A reconciliation of the difference between average basic common shares outstanding and average

Notes to Consolidated Financial Statements (Unaudited)

diluted common shares outstanding for the three and nine months ended September 30, 2006 and 2005 is included in the following table:


	Three Months Ended September 30		Nine Months Ended September 30
(In thousands, except per share data)	2006	2005	2006	2005
Diluted
Net income	$535,588	$510,774	$1,611,117	$1,468,768

Average basic common shares	361,805	359,702	361,009	359,020
Effect of dilutive securities:
Stock options	2,256	2,553	2,128	2,836
Performance and restricted stock	1,060	1,599	1,185	1,691

Average diluted common shares	365,121	363,854	364,322	363,547

Earnings per average common share - diluted	$1.47	$1.40	$4.42	$4.04

Basic
Net income	$535,588	$510,774	$1,611,117	$1,468,768

Average basic common shares	361,805	359,702	361,009	359,020

Earnings per average common share - basic	$1.48	$1.42	$4.46	$4.09

Note 11 – Business Segment Reporting

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

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

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

Corporate and Investment Banking is comprised of the following businesses: corporate banking, investment banking, capital markets businesses, commercial leasing, and merchant banking. The corporate banking strategy is focused on companies with revenues in excess of $250 million and is organized along industry specialty and geographic lines.

Wealth and Investment Management provides a full array of wealth management products and professional services to both individual and institutional clients. Wealth and Investment Management’s primary segments include Private Wealth Management (brokerage and individual wealth management), Asset Management Advisors, and Institutional Investment Management and Administration. On September 29, 2006, the Company sold its Bond Trustee business unit, which was a part of the Wealth and Investment Management line of business. The sale was part of an effort by the Company to modify its business mix to focus on its high-growth core business lines and market segments. See Note 2, Acquisitions/Dispositions, for additional details.

The Mortgage line of business offers residential mortgage products nationally through its retail, broker and correspondent channels. These products are either sold in the secondary market primarily with servicing rights retained or held as whole loans in the Company’s residential loan portfolio. The line of business services loans for its own residential mortgage portfolio as well as for

Notes to Consolidated Financial Statements (Unaudited)

others. Additionally, the line of business generates revenue through its tax service subsidiary (ValuTree Real Estate Services, LLC) and its captive reinsurance subsidiary (Cherokee Insurance Company).

In addition, the Company reports a Corporate Other and Treasury segment which includes the investment securities portfolio, long-term debt, capital, short-term liquidity and funding activities, balance sheet risk management including derivative hedging activities, and certain support activities not currently allocated to the aforementioned lines of business. Any internal management reporting transactions not already eliminated in the results of the functional lines of business are reflected in Reconciling Items.

The Company continues to augment its internal management reporting methodologies. Currently, the lines of business’ financial performance is comprised of direct financial results as well as various allocations that for internal management reporting purposes provides an enhanced view of analyzing the lines of business’ financial performance. The internal allocations include the following: match maturity funds transfer pricing and a fully taxable-equivalent (“FTE”) gross-up on tax exempt loans and securities to create net interest income, occupancy expense (inclusive of the cost to carry the assets), various support costs such as operational, human resource and corporate finance, certain product-related expenses incurred within production support areas, and overhead costs. Beginning January 2006, income tax expense is calculated based on a marginal income tax rate which is modified to reflect the impact of various income tax adjustments and credits that are unique to each business segment. Future enhancements to line of business segment profitability reporting are expected to include: the attribution of economic capital and the use of expected loss in lieu of net charge-offs. Currently, for credit related costs of the functional lines of business, the Company uses net charge-offs as an estimate of the provision for loan losses. The implementation of these enhancements to the internal management reporting methodology may materially affect the net income disclosed for each segment with no impact on consolidated amounts. Whenever significant changes to management reporting methodologies take place, the impact of these changes is quantified and prior period information is reclassified wherever practicable. The Company will reflect these reclassified changes in the current period and will update historical year-to-date, quarterly, and annual results.

The tables below disclose selected financial information for SunTrust’s reportable segments for the three and nine months ended September 30, 2006 and 2005.

Notes to Consolidated Financial Statements (Unaudited)


	Three Months Ended September 30, 2006
(Dollars in thousands)	Retail	Commercial	Corporate and Investment Banking	Mortgage	Wealth and Investment Management	Corporate Other and Treasury		Reconciling Items		Consolidated
Average total assets	$37,246,940	$35,327,349	$24,162,242	$42,798,284	$8,948,786	$30,159,200		$1,858,120		$180,500,921
Average total liabilities	69,809,118	14,043,209	7,411,894	2,351,246	9,674,423	59,593,910		(44,721	)	162,839,079
Average total equity	—	—	—	—	—	—		17,661,842		17,661,842

Net interest income	$589,126	$226,862	$45,645	$155,827	$92,358	($37,511	)	$79,085		$1,151,392
Fully taxable-equivalent adjustment (FTE)	33	10,546	7,962	—	19	3,910		(2	)	22,468

Net interest income (FTE)¹	589,159	237,408	53,607	155,827	92,377	(33,601	)	79,083		1,173,860
Provision for loan losses²	26,452	1,649	5,784	735	736	764		25,448		61,568

Net interest income after provision for loan losses	562,707	235,759	47,823	155,092	91,641	(34,365	)	53,635		1,112,292
Noninterest income	271,024	65,858	145,214	98,169	355,347	(69,296	)	(7,385	)	858,931
Noninterest expense	535,359	156,314	108,620	153,511	259,166	(501	)	(6,970	)	1,205,499

Net income before taxes	298,372	145,303	84,417	99,750	187,822	(103,160	)	53,220		765,724
Provision for income taxes³	108,722	36,612	31,689	34,308	69,959	(70,327	)	19,173		230,136

Net income	$189,650	$108,691	$52,728	$65,442	$117,863	($32,833	)	$34,047		$535,588


	Three Months Ended September 30, 2005
	Retail	Commercial	Corporate and Investment Banking	Mortgage	Wealth and Investment Management	Corporate Other and Treasury		Reconciling Items		Consolidated
Average total assets	$37,168,837	$33,246,681	$21,695,289	$34,094,174	$8,661,792	$32,475,410		$2,591,777		$169,933,960
Average total liabilities	65,967,934	13,550,321	7,371,070	2,155,330	9,778,556	54,449,121		(161,291	)	153,111,041
Average total equity	—	—	—	—	—	—		16,822,919		16,822,919

Net interest income	$555,021	$219,475	$62,031	$139,565	$87,631	($632	)	$93,570		$1,156,661
Fully taxable-equivalent adjustment (FTE)	22	9,748	5,530	—	16	3,765		—		19,081

Net interest income (FTE)¹	555,043	229,223	67,561	139,565	87,647	3,133		93,570		1,175,742
Provision for loan losses²	36,446	15,479	17,977	2,928	1,885	1,996		(6,318	)	70,393

Net interest income after provision for loan losses	518,597	213,744	49,584	136,637	85,762	1,137		99,888		1,105,349
Noninterest income	264,126	67,522	170,138	83,224	237,343	18,050		(8,005	)	832,398
Noninterest expense	512,334	163,623	118,159	136,480	238,512	15,968		(8,005	)	1,177,071

Net income before taxes	270,389	117,643	101,563	83,381	84,593	3,219		99,888		760,676
Provision for income taxes³	100,674	27,218	38,443	28,842	31,571	(11,125	)	34,279		249,902

Net income	$169,715	$90,425	$63,120	$54,539	$53,022	$14,344		$65,609		$510,774

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

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

³	Includes regular income tax provision and taxable-equivalent income adjustment reversal.

Notes to Consolidated Financial Statements (Unaudited)


	Nine Months Ended September 30, 2006
(Dollars in thousands)	Retail	Commercial	Corporate and Investment Banking	Mortgage	Wealth and Investment Management	Corporate Other and Treasury		Reconciling Items		Consolidated
Average total assets	$37,890,083	$34,789,535	$23,793,117	$41,165,266	$8,902,517	$31,005,331		$2,085,826		$179,631,675
Average total liabilities	68,950,349	14,092,695	8,055,430	2,087,834	9,414,558	59,730,785		(41,577	)	162,290,074
Average total equity	—	—	—	—	—	—		17,341,601		17,341,601

Net interest income	$1,788,093	$677,877	$158,096	$453,618	$276,337	($80,917	)	$226,072		$3,499,176
Fully taxable -equivalent adjustment (FTE)	75	30,701	21,849	—	53	11,413		(2	)	64,089

Net interest income (FTE)¹	1,788,168	708,578	179,945	453,618	276,390	(69,504	)	226,070		3,563,265
Provision for loan losses²	65,041	7,208	4,954	5,735	1,679	2,930		59,183		146,730

Net interest income after provision for loan losses	1,723,127	701,370	174,991	447,883	274,711	(72,434	)	166,887		3,416,535
Noninterest income	795,912	202,625	463,023	318,837	845,939	(24,030	)	(16,500	)	2,585,806
Noninterest expense	1,599,347	473,186	339,246	447,327	775,976	26,041		(15,040	)	3,646,083

Net income before taxes	919,692	430,809	298,768	319,393	344,674	(122,505	)	165,427		2,356,258
Provision for income taxes³	336,701	105,466	112,018	110,906	128,218	(104,511	)	56,343		745,141

Net income	$582,991	$325,343	$186,750	$208,487	$216,456	($17,994	)	$109,084		$1,611,117


	Nine Months Ended September 30, 2005
	Retail	Commercial	Corporate and Investment Banking	Mortgage	Wealth and Investment Management	Corporate Other and Treasury		Reconciling Items		Consolidated
Average total assets	$36,444,314	$32,889,049	$20,607,067	$31,211,916	$8,469,582	$33,420,676		$2,457,913		$165,500,517
Average total liabilities	64,948,540	13,682,294	7,445,123	1,811,540	9,680,901	51,765,727		(242,158	)	149,091,967
Average total equity	—	—	—	—	—	—		16,408,550		16,408,550

Net interest income	$1,614,641	$635,644	$176,850	$395,944	$247,758	$16,004		$305,089		$3,391,930
Fully taxable -equivalent adjustment (FTE)	58	28,203	15,790	—	48	11,367		1		55,467

Net interest income (FTE)¹	1,614,699	663,847	192,640	395,944	247,806	27,371		305,090		3,447,397
Provision for loan losses²	98,682	18,302	17,256	6,810	3,038	4,841		(20,169	)	128,760

Net interest income after provision for loan losses	1,516,017	645,545	175,384	389,134	244,768	22,530		325,259		3,318,637
Noninterest income	758,446	185,865	499,920	179,254	703,658	54,551		(24,573	)	2,357,121
Noninterest expense	1,511,270	455,785	344,896	373,870	717,869	104,706		(24,594	)	3,483,802

Net income before taxes	763,193	375,625	330,408	194,518	230,557	(27,625	)	325,280		2,191,956
Provision for income taxes³	285,158	93,486	125,052	65,937	85,855	(47,463	)	115,163		723,188

Net income	$478,035	$282,139	$205,356	$128,581	$144,702	$19,838		$210,117		$1,468,768

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

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

³	Includes regular income tax provision and taxable-equivalent income adjustment reversal.

Notes to Consolidated Financial Statements (Unaudited)

Note 12 – Off Balance Sheet Arrangements

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

Three Pillars has issued a subordinated note to a third party. The holder of this note absorbs the majority of Three Pillars’ expected losses. Therefore, the subordinated note investor is Three Pillars’ primary beneficiary, and thus the Company is not required to consolidate Three Pillars. As of September 30, 2006 and December 31, 2005, Three Pillars had assets not included on the Company’s Consolidated Balance Sheets of approximately $5.8 billion and $4.7 billion, respectively, consisting primarily of secured loans and marketable asset-backed securities.

Activities related to the Three Pillars relationship generated net fee revenue for the Company of approximately $8.5 million and $7.0 million for the quarters ended September 30, 2006 and 2005, respectively and $22.9 million and $18.2 million for the nine months ended September 30, 2006 and 2005, respectively. These activities include: client referrals and investment recommendations to Three Pillars; the issuing of a letter of credit, which provides partial credit protection to the commercial paper holders; and providing a majority of the temporary liquidity arrangements that would provide funding to Three Pillars in the event it can no longer issue commercial paper or in certain other circumstances.

As of September 30, 2006, off-balance sheet liquidity commitments and other credit enhancements made by the Company to Three Pillars, the sum of which represents the Company’s maximum exposure to potential loss, totaled $7.9 billion and $686.8 million, respectively, compared to $7.2 billion and $707.1 million, respectively, as of December 31, 2005. The Company manages the credit risk associated with these commitments by subjecting them to the Company’s normal credit approval and monitoring processes.

As part of its community reinvestment initiatives, the Company invests in multi-family affordable housing properties throughout its footprint as a limited and/or general partner. The Company receives affordable housing federal and state tax credits for these limited partner investments. Partnership assets of approximately $767.9 million and $803.0 million in partnerships where SunTrust is only a limited partner were not included in the Consolidated Balance Sheets at September 30, 2006 and December 31, 2005, respectively. The Company’s maximum exposure to loss for these limited partner investments at September 30, 2006 totaled $332.7 million as compared to $357.9 million at December 31, 2005. The Company’s maximum exposure to loss related to its affordable housing limited partner investments consists of the limited partnership equity investments, unfunded equity commitments, and debt issued by the Company to the limited partnerships.

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

Notes to Consolidated Financial Statements (Unaudited)

Note 13 – Guarantees

The Company has undertaken certain guarantee obligations in the ordinary course of business. In following the provisions of FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees” (“FIN 45”), the Company must consider guarantees that have any of the following four characteristics: (i) contracts that contingently require the guarantor to make payments to a guaranteed party based on changes in an underlying factor that is related to an asset, a liability, or an equity security of the guaranteed party; (ii) contracts that contingently require the guarantor to make payments to a guaranteed party based on another entity’s failure to perform under an obligating agreement; (iii) indemnification agreements that contingently require the indemnifying party to make payments to an indemnified party based on changes in an underlying factor that is related to an asset, a liability, or an equity security of the indemnified party; and (iv) indirect guarantees of the indebtedness of others. The issuance of a guarantee imposes an obligation for the Company to stand ready to perform, and should certain triggering events occur, it also imposes an obligation to make future payments. Payments may be in the form of cash, financial instruments, other assets, shares of stock, or provisions of the Company’s services. The following is a discussion of the guarantees that the Company has issued as of September 30, 2006, which have characteristics as specified by FIN 45.

Letters of Credit

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

As of September 30, 2006 and December 31, 2005, the maximum potential amount of the Company’s obligation was $13.1 billion and $13.3 billion, respectively, for financial and performance standby letters of credit. The Company has recorded $108.9 million and $113.8 million in other liabilities for unearned fees related to these letters of credit as of September 30, 2006 and December 31, 2005, respectively. The Company’s outstanding letters of credit generally have a term of less than one year but may extend longer than one year. If a letter of credit is drawn upon, the Company may seek recourse through the client’s underlying line of credit. If the client’s line of credit is also in default, the Company may take possession of the collateral securing the line of credit.

Contingent Consideration

The Company has contingent payment obligations related to certain business combination transactions. Payments are calculated using certain post-acquisition performance criteria. The potential liability associated with these arrangements was approximately $80.1 million and $163.0 million as of September 30, 2006 and December 31, 2005, respectively. As contingent consideration in a business combination is not subject to the recognition and measurement provisions of FIN 45, the Company currently has no amounts recorded for these guarantees as of September 30, 2006. If required, these contingent payments would be payable within the next three years.

Notes to Consolidated Financial Statements (Unaudited)

Other

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

Third party investors hold Series B Preferred Stock in STB Real Estate Holdings (Atlanta), Inc. (“STBREH”), a subsidiary of SunTrust. The contract between STBREH and the third party investors contains an automatic exchange clause which, under certain circumstances, requires the Series B preferred shares to be automatically exchanged for guaranteed preferred beneficial interest in debentures of the Company. The guaranteed preferred beneficial interest in debentures is guaranteed to have a liquidation value equal to the sum of the issue price, $350.0 million, and a range of 7.8% to 9.3% per annum subject to reduction for any cash or property dividends paid to date. The yield is dependent on the nature of the exchange. As of September 30, 2006 and December 31, 2005, $527.1 million and $492.9 million was accrued in other liabilities for the principal and interest, respectively. This exchange agreement remains in effect as long as any shares of Series B Preferred Stock are owned by the third party investors, not to exceed 30 years from the February 25, 2002 date of issuance of the Series B Preferred Stock.

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

The Company has guarantees associated with credit default swaps, an agreement in which the buyer of protection pays a premium to the seller of the credit default swap for protection against an event of default. Events constituting default under such agreements that would result in the Company making a guaranteed payment to a counterparty may include (i) default of the referenced asset; (ii) bankruptcy of the client; or (iii) restructuring or reorganization by the client. The notional amount outstanding as of September 30, 2006 and December 31, 2005 was $463.6 million and $664.2 million, respectively. As of September 30, 2006, the notional amounts expire as follows: $113.0 million in 2006, $30.0 million in 2007, $87.0 million in 2008, $34.8 million in 2009, $84.3 million in 2010, and $114.5 million thereafter. In the event of default under the contract, the Company would make a cash payment to the holder of credit protection and would take delivery of the referenced asset from which the Company may recover a portion of the credit loss. In addition, there are certain purchased credit default swap contracts that mitigate a portion of the Company’s exposure on written contracts. Such contracts are not included in this disclosure since they represent benefits to, rather than obligations of, the Company.

Note 14 – Concentrations of Credit Risk

Credit risk represents the maximum accounting loss that would be recognized at the reporting date if borrowers failed to perform as contracted and any collateral or security proved to be of no value.

Notes to Consolidated Financial Statements (Unaudited)

Concentrations of credit risk (whether on- or off-balance sheet) arising from financial instruments can exist in relation to individual borrowers or groups of borrowers, certain types of collateral, certain types of industries, certain loan products, or certain regions of the country.

Credit risk associated with these concentrations could arise when a significant amount of loans, related by similar characteristics, are simultaneously impacted by changes in economic or other conditions that cause their probability of repayment to be adversely affected. The Company does not have a significant concentration to any individual client except for the U.S. government and its agencies. The major concentrations of credit risk for the Company arise by collateral type in relation to loans and credit commitments. The only significant concentration that exists is in loans secured by residential real estate. At September 30, 2006, the Company had $47.7 billion in residential real estate loans, representing 39.4% of total loans, and an additional $18.5 billion in commitments to extend credit on such loans. At December 31, 2005, the Company had $43.5 billion in residential real estate loans, representing 38.0% of total loans, and an additional $15.7 billion in commitments to extend credit on such loans. The Company originates and retains certain residential mortgage loan products that include features such as interest only loans, high loan to value loans and low initial interest rate loans, which comprised approximately 40% and 30% of loans secured by residential real estate at September 30, 2006 and December 31, 2005. The risk in each loan type is mitigated and controlled by managing the timing of payment shock, private mortgage insurance and underwriting guidelines and practices. A geographic concentration arises because the Company operates primarily in the Southeastern and Mid-Atlantic regions of the United States.

SunTrust engages in limited international banking activities. The Company’s total cross-border outstandings were $719.2 million and $412.8 million as of September 30, 2006 and December 31, 2005, respectively.

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

SunTrust Banks, Inc. (“SunTrust” or “the Company”), one of the nation’s largest commercial banking organizations, is a financial holding company with its headquarters in Atlanta, Georgia. SunTrust’s principal banking subsidiary, SunTrust Bank, offers a full line of financial services for consumers and businesses through its branches located primarily in Florida, Georgia, Maryland, North Carolina, South Carolina, Tennessee, Virginia, and the District of Columbia. Within its geographic footprint, the Company operates under five business segments. These business segments are: Retail, Commercial, Corporate and Investment Banking (“CIB”), Mortgage, and Wealth and Investment Management. In addition to traditional deposit, credit, and trust and investment services offered by SunTrust Bank, other SunTrust subsidiaries provide mortgage banking, credit-related insurance, asset management, securities brokerage and capital market services. As of September 30, 2006, SunTrust had 1,699 full-service branches, including in-store branches, and continues to leverage technology to provide customers the convenience of banking on the Internet, through 2,568 automated teller machines and via twenty-four hour telebanking.

The following analysis of the financial performance of SunTrust for the third quarter of 2006 should be read in conjunction with the financial statements, notes and other information contained in this document and the 2005 Annual Report found on Form 10-K. Certain reclassifications may be made to prior year financial statements and related information to conform them to the 2006 presentation. In Management’s Discussion and Analysis, net interest income, net interest margin and the efficiency ratio are presented on a fully taxable-equivalent (“FTE”) basis, and the ratios are presented on an annualized basis. The FTE basis adjusts for the tax-favored status of net interest income from certain loans and investments. The Company believes this measure to be the preferred industry measurement of net interest income and it enhances comparability of net interest income arising from taxable and tax-exempt sources. During the second quarter of 2006, the net interest margin calculation was revised as a result of the Company segregating certain noninterest earning trading assets that had previously been included with interest earning trading assets. All prior periods presented were restated to reflect this refinement. Management believes this refined method to be a more reflective measure of net interest margin due to the interest earning nature of these assets.

The Company presents diluted earnings per share and the efficiency ratio excluding merger expense related to the NCF acquisition. The Company believes the exclusion of the merger charges, which represent incremental costs to integrate National Commerce Financial’s (“NCF”) operations, results in a more accurate reflection of normalized operations. In its line of business presentation, the Company reports net income excluding the Receivables Capital Management (“RCM”) divestiture, and net income and noninterest income excluding the net gain on the sale of the Bond Trustee business. The Company believes net income and noninterest income without the impact of the RCM divestiture and the gain on the sale of the Bond Trustee business is more indicative of normalized operations for the lines of business. Additionally, the Company presents a return on average realized common shareholders’ equity, as well as a return on average common shareholders’ equity (“ROE”). The Company also presents a return on average assets less net unrealized securities gains and a return on average total assets (“ROA”). The return on average realized common shareholders’ equity and return on average assets less net unrealized securities gains exclude realized securities gains and losses, The Coca-Cola Company dividend, and net unrealized securities gains. Due to its ownership of approximately 48 million shares of common stock of The Coca-Cola Company, resulting in an unrealized net gain of $2.2 billion as of September 30, 2006, the Company believes ROA and ROE excluding these impacts from the Company’s securities portfolio is the more comparative performance measure when being evaluated against other companies. The Company provides reconcilements on pages 32 through 34 for all non accounting principles generally accepted in the United States (“US GAAP”) financial measures.

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

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

Forward-looking statements involve significant risks and uncertainties. Investors are cautioned against placing undue reliance on such statements. Actual results may differ materially from those set forth in the forward-looking statements. Factors that could cause actual results to differ materially from those described in the forward-looking statements can be found in the Company’s 2005 Annual Report on Form 10-K, in the Company’s Quarterly Reports on Form 10-Q (including this Quarterly Report, at Part II, Item 1A,) and in the Current Reports filed on Form 8-K with the Securities and Exchange Commission and available at the Securities and Exchange Commission’s internet site (http://www.sec.gov). Those factors include: changes in general business or economic conditions, including customers’ ability to repay debt obligations, could have a material adverse effect on our financial condition and results of operations; changes in market interest rates or capital markets could adversely affect our revenues and expenses, the value of assets and obligations, costs of capital, or liquidity; the fiscal and monetary policies of the federal government and its agencies could have a material adverse effect on our earnings; significant changes in securities markets or markets for commercial or residential real estate could harm our revenues and profitability; customers could pursue alternatives to bank deposits, causing us to lose a relatively inexpensive source of funding; customers may decide not to use banks to complete their financial transactions, which could affect net income; we have businesses other than banking, which subjects us to a variety of risks; hurricanes and other natural disasters may adversely affect loan portfolios and operations and increase the cost of doing business; negative public opinion could damage our reputation and adversely impact our business; we rely on other companies for key components of our business infrastructure; we depend on the accuracy and completeness of information about clients and counterparties; regulation by federal and state agencies could adversely affect our business, revenues, and profit margins; competition in the financial services industry is intense and could result in losing business or reducing profit margins; future legislation could harm our competitive position; maintaining or increasing market share depends on market acceptance and regulatory approval of new products and services; our ability to receive dividends from our subsidiaries accounts for most of our revenues and could affect our liquidity and ability to pay dividends; we have in the past and may in the future pursue acquisitions, which could affect costs and from which we may not be able to realize anticipated benefits; we depend on the expertise of key personnel without whom our operations may suffer; we may be unable to hire or retain additional qualified personnel and recruiting and compensation costs may increase as a result of turnover, both of which may increase costs and reduce profitability and may adversely impact our ability to implement our business strategy; our accounting policies and methods are key to how we report financial condition and results of operations, and may require management to make estimates about matters that are uncertain; our stock price can be volatile; and our disclosure controls and procedures may fail to prevent or detect all errors or acts of fraud.

EARNINGS OVERVIEW

SunTrust reported earnings of $535.6 million for the third quarter of 2006, an increase of $24.8 million, or 4.9%, compared to the same period of the prior year. Diluted earnings per average common share were $1.47 and $1.40 for the three months ended September 30, 2006 and 2005, respectively. Diluted earnings per average common share excluding merger expense, share excluding

merger expense, which excluded $7.5 million of after-tax merger charges for the third quarter of 2005, were $1.42 for the third quarter of 2005. Net income for the first nine months of 2006 was $1,611.1 million, an increase of $142.3 million, or 9.7%, compared to the same period of the prior year. Diluted earnings per average common share were $4.42 and $4.04 for the nine months ended September 30, 2006 and 2005, respectively. Diluted earnings per average common share excluding merger expense, which excluded $57.1 million of after-tax merger charges, were $4.20 for the first nine months of 2005.

Net interest income was $1,173.9 million for the third quarter of 2006, a decrease of $1.8 million, or 0.2%, from the third quarter of 2005. The lack of growth was mainly the result of the flat to inverted yield curve that has persisted over the quarter, as well as the continued shift in deposit mix away from lower-cost deposit products to certificates of deposit. Average loans increased $9.9 billion, or 9.0%, and average loans held for sale increased $2.5 billion, or 28.6%, from the third quarter of 2005. The net interest margin decreased 21 basis points from the third quarter of 2005 to the third quarter of 2006 primarily due to higher short-term borrowing costs and tighter spreads resulting from the continued flat to inverted yield curve. An overall decline in low cost deposits, as well as a shift in deposit mix to higher cost certificate of deposits also contributed to the decline.

Net interest income for the nine months ended September 30, 2006 was $3,563.3 million, an increase of $115.9 million, or 3.4%, from the same period of the prior year, due primarily to strong growth in loans. The net interest margin decreased 17 basis points from the first nine months of 2005 to the first nine months of 2006 due to the same factors that impacted the quarter over quarter decline described above.

Provision for loan losses was $61.6 million in the third quarter of 2006, a decrease of $8.8 million, or 12.5%, from the same period of the prior year. The provision for loan losses was $25.4 million greater than net charge-offs for the third quarter of 2006, resulting in a corresponding increase to the allowance for loan and lease losses (“ALLL”). This increase was primarily due to an increase in specific reserves driven by recognition of a specific reserve on an approximate $200 million commercial loan during the third quarter of 2006. Annualized net charge-offs to average loans were 0.12% for the third quarter of 2006 compared to 0.27% for the same period last year. For the nine months ended September 30, 2006, the provision for loan losses was $146.7 million, an increase of $18.0 million, or 14.0%, from the same period of the prior year. The increase in the provision was primarily attributable to significant loan growth and the recognition of a specific reserve for the large nonaccrual commercial loan.

Total noninterest income was $858.9 million for the third quarter of 2006, an increase of $26.5 million, or 3.2%, from the same period of the prior year. A significant portion of the noninterest income growth resulted from the $112.8 million net gain on the sale of the Bond Trustee business. The Company also restructured a portion of the investment portfolio in the third quarter of 2006 that accounted for substantially all of the $91.8 million in net securities losses for the quarter. Growth in card fees, trust and investment management income and retail investment services income was offset primarily by declines in trading account profits and commissions, investment banking income, other charges and fees and service charges on deposit accounts. The increase in mortgage servicing related income experienced during the third quarter was an indication of the increased income created from a larger servicing portfolio and the realization of the value embedded in the mortgage servicing rights through the sale of a portion of the servicing rights that resulted in a $23.9 million gain.

For the first nine months of 2006, noninterest income was $2,585.8 million, up $228.7 million, or 9.7%, from $2,357.1 million for the same period in 2005. Aside from the quarter over quarter aforementioned net gain on the sale of the Bond Trustee business and securities losses incurred by the investment portfolio restructuring, the increase was driven mainly by mortgage-related income, card fees, trust and investment management income and retail investment services income. These increases were partially offset by lower capital markets revenue.

Total noninterest expense was $1,205.5 million for the third quarter of 2006, an increase of $28.4 million, or 2.4%, from the same period of the prior year. The increase was primarily attributed to increased personnel expense, higher net occupancy expense, and outside processing and software. These increases reflect certain investments in revenue producing divisions of the Company,

including the addition of offices and employees and investment in the infrastructure of the organization to gain greater efficiencies in the future. These increases were offset by lower amortization of intangible assets, a $25.7 million impairment charge on Affordable Housing properties in the third quarter of 2005, and the absence of merger expense in the third quarter of 2006 compared to $12.1 million incurred during the third quarter of 2005.

For the first nine months of 2006, noninterest expense was $3,646.1 million, up $162.3 million, or 4.7%, from $3,483.8 million for the same period in 2005. The factors causing this increase were similar to those noted in the quarter over quarter discussion above. Additionally, there was an increase in marketing and customer development expense resulting from the Company’s marketing campaigns focusing on customer acquisition and deposit promotion, and consulting expense primarily related to consulting costs for the Company’s risk management process initiatives. Offsetting these increases was the absence of merger expense for the first nine months of 2006 compared to $92.1 million incurred during the first nine months of 2005.


Selected Quarterly Financial Data		Table 1


	Three Months Ended September 30				Nine Months Ended September 30
(Dollars in millions, except per share data) (Unaudited)	2006		2005		2006		2005
Summary of Operations
Interest and dividend income	$2,525.5		$1,996.7		$7,227.3		$5,556.0
Interest expense	1,374.1		840.0		3,728.1		2,164.0

Net interest income	1,151.4		1,156.7		3,499.2		3,392.0
Provision for loan losses	61.6		70.4		146.7		128.8

Net interest income after provision for loan losses	1,089.8		1,086.3		3,352.5		3,263.2
Noninterest income	858.9		832.4		2,585.8		2,357.1
Noninterest expense	1,205.5		1,177.1		3,646.1		3,483.8

Income before provision for income taxes	743.2		741.6		2,292.2		2,136.5
Provision for income taxes	207.6		230.8		681.1		667.7

Net income	$535.6		$510.8		$1,611.1		$1,468.8

Net interest income-FTE	$1,173.9		$1,175.7		$3,563.3		$3,447.4
Total revenue - FTE	2,032.8		2,008.1		6,149.1		5,804.5

Per Average Common Share
Diluted earnings	$1.47		$1.40		$4.42		$4.04
Diluted earnings excluding merger expense	1.47		1.42		4.42		4.20
Basic	1.48		1.42		4.46		4.09
Dividends declared	0.61		0.55		1.83		1.65
Book value	49.71		46.28
Market price:
High	81.59		75.77		81.59		75.77
Low	75.11		68.85		69.68		68.85
Close	77.28		69.45		77.28		69.45

Selected Average Balances
Total assets	$180,500.9		$169,934.0		$179,631.7		$165,500.5
Earning assets	158,914.7		148,552.6		157,860.4		144,331.3
Loans	120,742.0		110,818.4		119,066.0		107,028.2
Consumer and commercial deposits	97,642.5		94,075.7		96,711.0		92,714.1
Brokered and foreign deposits	27,958.3		17,969.2		26,613.6		15,717.5
Total shareholders’ equity	17,661.8		16,822.9		17,341.6		16,408.5
Total average shareholders’ equity to average assets	9.78	%	9.90	%	9.65	%	9.91	%
Average common shares - diluted (thousands)	365,121		363,854		364,322		363,547
Average common shares - basic (thousands)	361,805		359,702		361,009		359,020

Financial Ratios (Annualized)
Return on average total assets	1.18	%	1.19	%	1.20	%	1.19	%
Return on average assets less net unrealized securities gains	1.28		1.18		1.22		1.18
Return on average common shareholders’ equity	12.10		12.05		12.45		11.97
Return on average realized common shareholders’ equity	13.73		12.81		13.24		12.68
Net interest margin	2.93		3.14		3.02		3.19
Efficiency ratio	59.30		58.62		59.29		60.02
Efficiency ratio excluding merger expense	59.30		58.01		59.29		58.43
Tangible efficiency ratio	58.03		57.13		58.01		58.45
Tangible equity to tangible assets	6.42		5.68

Capital Adequacy
Tier 1 capital ratio	7.70		7.03
Total capital ratio	11.07		10.66
Tier 1 leverage ratio	7.27		6.64


Selected Quarterly Financial Data, continued		Table 1


	Three Months Ended September 30				Nine Months Ended September 30
(Dollars in millions, except per share data) (Unaudited)	2006		2005		2006		2005
Reconcilement of Non US GAAP Financial Measures
Net income	$535.6		$510.8		$1,611.1		$1,468.8
Securities (gains)/losses, net of tax	56.9		1.3		53.2		4.8

Net income excluding net securities (gains)/losses	592.5		512.1		1,664.3		1,473.6
The Coca-Cola Company dividend, net of tax	(13.3	)	(12.0	)	(40.0	)	(36.0	)

Net income excluding net securities (gains)/losses and The Coca-Cola Company dividend	$579.2		$500.1		$1,624.3		$1,437.6

Net income	$535.6		$510.8		$1,611.1		$1,468.8
Merger expense, net of tax	—		7.5		—		57.1

Net income excluding merger expense	$535.6		$518.3		$1,611.1		$1,525.9

Net income - Corporate and Investment Banking					$186.7		$205.3
RCM divestiture, net of tax					—		(15.7	)

Net income excluding RCM divestiture - Corporate and Investment Banking					$186.7		$189.6

Net income - Wealth and Investment Management	$117.8		$53.0		$216.4		$144.7
Net gain on sale of Bond Trustee business, net of tax	(69.9	)	—		(69.9	)	—

Net income excluding net gain on sale of Bond Trustee business - Wealth and Investment Management	$47.9		$53.0		$146.5		$144.7

Noninterest income - Wealth and Investment Management	$355.3		$237.3		$845.9		$703.6
Net gain on sale of Bond Trustee business	(112.8	)	—		(112.8	)	—

Noninterest income excluding net gain on sale of Bond Trustee business - Wealth and Investment Management	$242.5		$237.3		$733.1		$703.6

Noninterest expense	$1,205.5		$1,177.1		$3,646.1		$3,483.8
Merger expense	—		(12.1	)	—		(92.1	)

Noninterest expense excluding merger expense	$1,205.5		$1,165.0		$3,646.1		$3,391.7

Diluted earnings per average common share	$1.47		$1.40		$4.42		$4.04
Impact of excluding merger expense	—		0.02		—		0.16

Diluted earnings per average common share excluding merger expense	$1.47		$1.42		$4.42		$4.20

Efficiency ratio	59.30	%	58.62	%	59.29	%	60.02	%
Impact of excluding merger expense	—		(0.61	)	—		(1.59	)

Efficiency ratio excluding merger expense	59.30	%	58.01	%	59.29	%	58.43	%

Total average assets	$180,500.9		$169,934.0		$179,631.7		$165,500.5
Average net unrealized securities gains	(1,374.6	)	(2,102.2	)	(1,504.3	)	(1,975.8	)

Average assets less net unrealized securities gains	$179,126.3		$167,831.8		$178,127.4		$163,524.7

Total average common equity	$17,558.6		$16,822.9		$17,306.8		$16,408.5
Average accumulated other comprehensive income	(821.3	)	(1,331.1	)	(899.8	)	(1,252.1	)

Total average realized common equity	$16,737.3		$15,491.8		$16,407.0		$15,156.4

Return on average total assets	1.18	%	1.19	%	1.20	%	1.19	%
Impact of excluding net realized and unrealized securities gains/losses and The Coca-Cola Company dividend	0.10		(0.01	)	0.02		(0.01	)

Return on average total assets less net unrealized securities gains ¹	1.28	%	1.18	%	1.22	%	1.18	%

Return on average common shareholders’ equity	12.10	%	12.05	%	12.45	%	11.97	%
Impact of excluding net realized and unrealized securities gains/losses and The Coca-Cola Company dividend	1.63		0.76		0.79		0.71

Return on average realized common shareholders’ equity ²	13.73	%	12.81	%	13.24	%	12.68	%

¹	Computed by dividing annualized net income, excluding tax effected net securities gains/losses and The Coca-Cola Company dividend, by average assets less net unrealized gains/losses on securities.

²	Computed by dividing annualized net income available to common shareholders, excluding tax effected net securities gains/losses and The Coca-Cola Company dividend, by average realized common shareholders’ equity.


Selected Quarterly Financial Data, continued		Table 1


	Three Months Ended September 30		Nine Months Ended September 30
(Dollars in millions) (Unaudited)	2006	2005	2006	2005
Reconcilement of Non US GAAP Financial Measures
Net interest income	$1,151.4	$1,156.7	$3,499.2	$3,391.9
FTE adjustment	22.5	19.0	64.1	55.5

Net interest income - FTE	1,173.9	1,175.7	3,563.3	3,447.4
Noninterest income	858.9	832.4	2,585.8	2,357.1

Total revenue - FTE	2,032.8	2,008.1	6,149.1	5,804.5
Securities (gains)/losses	91.8	2.1	85.9	7.8

Total revenue excluding securities (gains)/losses	$2,124.6	$2,010.2	$6,235.0	$5,812.3


	As of September 30
(Dollars in thousands) (Unaudited)	2006		2005
Total shareholders’ equity	$18,589,307		$16,717,750
Goodwill	(6,903,001	)	(6,841,631	)
Other intangible assets including mortgage servicing rights (“MSRs”)	(1,120,102	)	(1,112,873	)
Mortgage servicing rights	724,323		613,467

Tangible equity	$11,290,527		$9,376,713

Total assets	$183,104,553		$172,416,096
Goodwill	(6,903,001	)	(6,841,631	)
Other intangible assets including MSRs	(1,120,102	)	(1,112,873	)
Mortgage servicing rights	724,323		613,467

Tangible assets	$175,805,773		$165,075,059

Tangible equity to tangible assets	6.42	%	5.68	%

CONSOLIDATED FINANCIAL PERFORMANCE

Net Interest Income/Margin

Net interest income was $1,173.9 million for the third quarter of 2006, a decrease of $1.8 million, or 0.2%, from the third quarter of 2005. The decrease in net interest income was primarily the result of the flat to inverted yield curve and the 4.5% decline in low cost consumer and commercial deposits which were replaced with higher costs deposits and wholesale funding.

The net interest margin decreased 21 basis points from 3.14% in the third quarter of 2005 to 2.93% in the third quarter of 2006 due to spread compression from the continued flat to inverted yield curve. An overall decline in low cost deposits, as well as a shift in the deposit mix to higher cost certificates of deposit also contributed to the decrease. Continuation or acceleration of this trend in customer preferences for higher yielding deposits and a prolonged flat to inverted yield curve, or other external factors, could have a negative impact on net interest margin in future periods. The Company has incorporated initiatives to mitigate further margin compression with an emphasis on growing lower cost deposits. The earning asset yield for the third quarter of 2006 increased 98 basis points from the third quarter of 2005. Loan yield increased 100 basis points and securities available for sale yield increased 51 basis points from the prior year. In the third quarter of 2006, the total interest-bearing liability costs increased 138 basis points from the third quarter of 2005.

While both short-term and long-term interest rates have risen for the last year, the yield curve has flattened considerably. The Federal Reserve Bank Fed Funds rate averaged 5.25% for the third quarter of 2006, an increase of 182 basis points over the third quarter of 2005 average, and one-month LIBOR increased 175 basis points to average 5.35% in the third quarter of 2006. In contrast, the five-year swap rate averaged 5.35%, an increase of 89 basis points over the third quarter of 2005 average, and the ten-year swap rate

increased 81 basis points over the same time period to an average rate of 5.45%. As a result, incremental asset growth, in particular mortgage loans and mortgage loans held for sale, has been funded at tighter spreads due to higher short-term borrowing costs.

Average earning assets were up $10.4 billion, or 7.0%, and average interest-bearing liabilities increased $10.5 billion, or 8.6%, for the third quarter of 2006 versus the third quarter of 2005. Average loans increased $9.9 billion, or 9.0%, average securities available for sale decreased $2.1 billion, or 8.1%, and average loans held for sale increased $2.5 billion, or 28.6%, in the third quarter of 2006 compared to the third quarter of 2005. The decline in securities available for sale was a result of the third quarter repositioning initiative to improve the portfolio yield and de-lever the balance sheet by reducing wholesale funding. Further details of the portfolio repositioning are provided in the “Securities Available for Sale” section beginning on page 41.

The Company continued to take steps to obtain alternative lower cost funding sources, such as developing initiatives to grow customer deposits. Campaigns to attract client deposits were implemented in 2005 and continued in the third quarter of 2006 as evidenced by the $3.6 billion increase in average consumer and commercial deposits compared to the third quarter of 2005. The net growth in consumer and commercial deposits was entirely in certificates of deposit as consumers have focused on higher paying deposits in the current rate environment. Low cost deposits (noninterest-bearing deposits, NOW accounts, and savings) declined $2.1 billion from third quarter of 2005. The decline was primarily due to lower cost deposits migrating to higher cost certificates of deposits as well as customers seeking alternative investments offered by the Company such as off balance sheet money market mutual funds.

For the first nine months of 2006, net interest income was $3,563.3 million, an increase of $115.9 million or 3.4%. The primary contributors to the growth were strong growth in loans and loans held for sale, partially offset by a decline in net interest margin. The net interest margin was 3.02% for the first nine months of 2006, a decline of 17 basis points from the same period a year ago. Short-term rates on a nine month basis increased more rapidly than long-term rates. Specifically, one-month LIBOR increased 187 basis points and the five-year swap rate increased only 94 basis points. As a result, the incremental asset growth was funded at tighter spreads due to higher short-term borrowing costs. The earning asset yield for the first nine months increased 98 basis points over the first nine months of 2005. The loan yield improved 102 basis points and securities available for sale increased 41 basis points. The cost of interest-bearing liabilities rose 136 basis points due to repricing of consumer and commercial interest-bearing deposits, a shift in deposit mix, and the increased cost of short-term funding.

Earning assets increased $13.5 billion, or 9.4%, while interest-bearing liabilities grew $12.5 billion, or 10.5%. The benefits of strong asset growth were offset by the continued shift in deposit mix away from lower cost deposit products to higher yielding certificates of deposit.

Interest income that the Company was unable to recognize on nonperforming loans had a negative impact on net interest margin of one basis point for both the first nine months of 2006 and the first nine months of 2005. Table 2 – Consolidated Daily Average Balances, Income/Expense and Average Yields Earned and Rates Paid contains more detailed information concerning average loans, yields and rates paid.


Consolidated Daily Average Balances, Income/Expense		Table 2
and Average Yields Earned and Rates Paid


	Three Months Ended
	September 30, 2006					September 30, 2005
(Dollars in millions; yields on taxable-equivalent basis) (Unaudited)	Average Balances		Income/ Expense	Yields/ Rates		Average Balances		Income/ Expense	Yields/ Rates
Assets
Loans:¹
Real estate 1-4 family	$33,875.7		$519.4	6.13	%	$28,250.5		$388.4	5.50	%
Real estate construction	12,805.6		247.5	7.67		9,515.7		152.6	6.36
Real estate home equity lines	13,626.3		270.2	7.87		12,648.6		195.7	6.14
Real estate commercial	12,808.6		223.4	6.92		12,872.0		193.0	5.95
Commercial - FTE¹	34,306.9		542.1	6.27		32,601.7		428.7	5.22
Business credit card	323.8		5.0	6.14		223.5		3.8	6.89
Consumer - direct	4,206.9		76.7	7.23		5,173.0		76.7	5.88
Consumer - indirect	8,339.1		121.5	5.78		9,179.8		124.9	5.40
Nonaccrual and restructured	449.1		4.4	3.87		353.6		3.8	4.25

Total loans¹	120,742.0		2,010.2	6.61		110,818.4		1,567.6	5.61
Securities available for sale:¹
Taxable	23,027.9		286.9	4.98		25,252.1		281.6	4.46
Tax-exempt - FTE¹	968.7		14.1	5.84		872.2		12.9	5.91

Total securities available for sale - FTE¹	23,996.6		301.0	5.02		26,124.3		294.5	4.51
Funds sold and securities purchased under agreements to resell	1,084.1		14.3	5.16		1,391.8		11.9	3.35
Loans held for sale	11,026.4		188.0	6.82		8,571.5		123.0	5.74
Interest-bearing deposits	25.8		0.3	5.04		18.5		0.2	3.72
Interest earning trading assets³	2,039.8		34.2	6.64		1,628.1		18.6	4.52

Total earning assets	158,914.7		2,548.0	6.36		148,552.6		2,015.8	5.38
Allowance for loan and lease losses	(1,070.8	)				(1,036.5	)
Cash and due from banks	3,705.8					4,226.8
Premises and equipment	1,925.7					1,842.6
Other assets	14,702.1					13,517.1
Noninterest earning trading assets³	948.8					729.2
Unrealized gains on securities available for sale	1,374.6					2,102.2

Total assets	$180,500.9					$169,934.0


Liabilities and Shareholders’ Equity
Interest-bearing deposits:
NOW accounts	$16,596.2		$78.1	1.87	%	$16,853.1		$44.3	1.04	%
Money market accounts	24,267.0		171.4	2.80		26,299.7		125.5	1.89
Savings	5,591.2		24.1	1.71		5,865.1		13.6	0.92
Consumer time	16,402.5		169.8	4.11		12,419.3		91.7	2.93
Other time	11,852.2		138.1	4.62		8,117.1		67.5	3.30

Total interest-bearing consumer and commercial deposits	74,709.1		581.5	3.09		69,554.3		342.6	1.95
Brokered deposits	18,420.7		246.1	5.23		10,940.4		94.6	3.38
Foreign deposits	9,537.6		128.5	5.27		7,028.8		61.5	3.42

Total interest-bearing deposits	102,667.4		956.1	3.69		87,523.5		498.7	2.26
Funds purchased	4,206.7		56.2	5.23		3,468.1		30.3	3.41
Securities sold under agreements to repurchase	7,146.3		86.0	4.71		6,671.1		51.7	3.03
Other short-term borrowings	1,001.3		16.9	6.70		2,625.9		24.9	3.76
Long-term debt	17,735.2		258.9	5.79		21,929.4		234.5	4.24

Total interest-bearing liabilities	132,756.9		1,374.1	4.11		122,218.0		840.1	2.73
Noninterest-bearing deposits	22,933.4					24,521.5
Other liabilities	7,148.8					6,371.6
Shareholders’ equity	17,661.8					16,822.9

Total liabilities and shareholders’ equity	$180,500.9					$169,934.0

Interest Rate Spread				2.25	%				2.65	%

Net Interest Income - FTE ^1,2			$1,173.9					$1,175.7

Net Interest Margin³				2.93	%				3.14	%

Interest income includes the effects of taxable-equivalent adjustments using a federal income tax rate of 35% and, where applicable, state income taxes to increase tax-exempt interest income to a taxable-equivalent basis. The net taxable-equivalent adjustment amounts included in the above table aggregated $22.5 million and $19.0 million in the quarters ended September 30, 2006 and September 30, 2005, respectively.

²	Derivative instruments used to help balance the Company’s interest-sensitivity position decreased net interest income $37.5 million and increased net interest income $24.2 million in the quarters ended September 30, 2006 and September 30, 2005, respectively.

The net interest margin is calculated by dividing annualized net interest income – FTE by average total earning assets. During the second quarter of 2006, the net interest margin calculation was revised as a result of the Company segregating certain noninterest earning trading assets that had previously been included with interest earning trading assets. All prior periods presented were restated to reflect this refinement. Management believes this refined method to be a more reflective measure of net interest margin due to the interest earning nature of these assets.


Consolidated Daily Average Balances, Income/Expense		Table 2
and Average Yields Earned and Rates Paid, continued


	Nine Months Ended
	September 30, 2006					September 30, 2005
(Dollars in millions; yields on taxable-equivalent basis) (Unaudited)	Average Balances		Income/ Expense	Yields/ Rates		Average Balances		Income/ Expense	Yields/ Rates
Assets
Loans:¹
Real estate 1-4 family	$33,246.6		$1,490.8	5.98	%	$25,987.8		$1,036.7	5.32	%
Real estate construction	12,040.7		669.5	7.43		9,444.2		425.0	6.02
Real estate home equity lines	13,512.1		758.9	7.51		12,122.9		522.2	5.76
Real estate commercial	12,810.0		643.4	6.71		11,553.4		489.7	5.67
Commercial - FTE¹	33,792.7		1,541.6	6.10		32,803.4		1,222.2	4.98
Business credit card	303.1		13.9	6.13		211.5		10.7	6.74
Consumer - direct	4,577.0		236.8	6.92		5,775.8		252.5	5.85
Consumer - indirect	8,425.2		353.8	5.61		8,811.3		354.7	5.38
Nonaccrual and restructured	358.6		11.6	4.33		317.9		9.7	4.08

Total loans¹	119,066.0		5,720.3	6.42		107,028.2		4,323.4	5.40
Securities available for sale:¹
Taxable	23,855.7		864.8	4.83		26,081.0		863.2	4.41
Tax-exempt - FTE¹	939.8		41.2	5.85		855.5		38.4	5.98

Total securities available for sale - FTE¹	24,795.5		906.0	4.87		26,936.5		901.6	4.46
Funds sold and securities purchased under agreements to resell	1,152.6		41.5	4.74		1,518.1		32.8	2.85
Loans held for sale	10,770.5		529.6	6.56		7,257.2		304.9	5.60
Interest-bearing deposits	114.5		3.0	3.58		22.6		0.5	3.24
Interest earning trading assets³	1,961.3		91.0	6.20		1,568.7		48.2	4.11

Total earning assets	157,860.4		7,291.4	6.18		144,331.3		5,611.4	5.20
Allowance for loan and lease losses	(1,053.0	)				(1,044.2	)
Cash and due from banks	3,885.9					4,301.3
Premises and equipment	1,901.8					1,851.1
Other assets	14,589.3					13,321.6
Noninterest earning trading assets³	943.0					763.6
Unrealized gains on securities available for sale	1,504.3					1,975.8

Total assets	$179,631.7					$165,500.5

Liabilities and Shareholders’ Equity
Interest-bearing deposits:
NOW accounts	$16,801.0		$205.6	1.64	%	$17,281.9		$116.7	0.90	%
Money market accounts	24,990.6		481.4	2.58		25,518.9		310.3	1.63
Savings	5,348.9		55.4	1.39		6,605.5		43.3	0.88
Consumer time	15,265.4		433.8	3.80		12,288.8		248.0	2.70
Other time	10,745.3		344.6	4.29		6,831.3		156.6	3.06

Total interest-bearing consumer and commercial deposits	73,151.2		1,520.8	2.78		68,526.4		874.9	1.71
Brokered deposits	17,197.8		637.5	4.89		9,010.7		211.6	3.10
Foreign deposits	9,415.8		347.7	4.87		6,706.9		145.3	2.86

Total interest-bearing deposits	99,764.8		2,506.0	3.36		84,244.0		1,231.8	1.95
Funds purchased	4,195.5		154.2	4.85		3,600.5		80.7	2.95
Securities sold under agreements to repurchase	7,066.2		233.8	4.36		6,439.9		125.5	2.57
Other short-term borrowings	1,370.3		60.1	5.87		2,617.2		64.2	3.28
Long-term debt	18,852.2		774.0	5.49		21,890.5		661.8	4.04

Total interest-bearing liabilities	131,249.0		3,728.1	3.80		118,792.1		2,164.0	2.44
Noninterest-bearing deposits	23,559.8					24,187.7
Other liabilities	7,481.3					6,112.2
Shareholders’ equity	17,341.6					16,408.5

Total liabilities and shareholders’ equity	$179,631.7					$165,500.5

Interest Rate Spread				2.38	%				2.76	%

Net Interest Income - FTE ^1,2			$3,563.3					$3,447.4

Net Interest Margin³				3.02	%				3.19	%

Interest income includes the effects of taxable-equivalent adjustments using a federal income tax rate of 35% and, where applicable, state income taxes to increase tax-exempt interest income to a taxable-equivalent basis. The net taxable-equivalent adjustment amounts included in the above table aggregated $64.1 million and $55.5 million for the nine months ended September 30, 2006 and September 30, 2005, respectively.

²	Derivative instruments used to help balance the Company’s interest-sensitivity position decreased net interest income $69.6 million and increased net interest income $93.1 million for the nine months ended September 30, 2006 and September 30, 2005, respectively.

Noninterest Income

Noninterest income increased $26.5 million, or 3.2%, from the third quarter of 2005 to the third quarter of 2006 and increased $228.7 million, or 9.7%, from the first nine months of 2005 to the first nine months of 2006. Positively impacting noninterest income were increases in trust and investment management income, retail investment services, card fees, and the $112.8 million net gain on the sale of Bond Trustee business. Net securities losses increased $89.7 million from the third quarter of 2005. On a year to date basis, net securities losses increased $78.1 million. The third quarter 2006 securities losses were attributable to restructuring a portion of the investment portfolio. Further details of the portfolio repositioning are provided in the “Securities Available for Sale” section beginning on page 41. The sale of Receivables Capital Management in 2005 resulted in a net gain of $23.4 million on a year to date basis and a $3.5 million net gain for the third quarter of 2005.

Trust and investment management income increased $4.9 million, or 2.9%, compared to the third quarter of 2005. On a year to date basis, trust and investment management income increased $16.8 million, or 3.4%. An overall increase in assets under management and improved market conditions resulted in higher income. Assets under management increased 3.7% from September 30, 2005 due to new business and an increase in equity market valuations.

Retail investment services increased $3.2 million, or 6.3%, compared to the third quarter of 2005. Compared to the first nine months of 2005, retail investment income increased $9.0 million, or 5.6%. The quarterly and year to date increases were attributable to improvements in annuity, managed account and new business revenues.

Combined investment banking income and trading account profits and commissions, SunTrust’s capital markets revenue sources, decreased $27.5 million, or 28.9%, compared to the third quarter of 2005. On a year to date basis, the combined income decreased $11.7 million, or 4.3%. The decline was due to typical cyclicality and uncertainty surrounding the closing of capital markets and investment banking transactions and negative interest rate related marks on economic hedges on warehouse loans pending sale or securitization.

Card fees, which include fees from business credit cards and debit card fees from consumers and businesses, increased $12.0 million, or 22.7%, compared to the third quarter of 2005. On a year to date basis, card fees increased $30.4 million, or 19.8%. The increase on a quarterly and year to date basis was primarily due to an increase in interchange fee income due to increased transaction volume. The higher transaction volumes were due to increased debit card penetration (number of account holders who have debit cards) which continued to trend upward as consumers increased the use of this form of payment.

Combined mortgage related income increased $15.9 million, or 22.5%, from the third quarter of 2005. Compared to the first nine months of 2005, mortgage related income increased $144.3 million, or 104.3%. Mortgage production income decreased $15.5 million compared to the third quarter of 2005 and increased $59.9 million compared to the first nine months of 2005. The decrease on a quarterly basis was primarily due to lower loan production and narrower margins on the sale of loans partially offset by increased secondary marketing loan deliveries. The increase on a year to date basis was driven by higher loan production and increased secondary marketing loan deliveries. Loan production of $13.7 billion was down $1.0 billion, or 6.5%, from the third quarter of 2005 and up $5.8 billion, or 16.7%, from the first nine months of 2005. Loan sales were up $1.9 billion, or 24.2%, for the third quarter of 2006, and up $10.6 billion, or 52.3%, for the first nine months of 2006. Mortgage servicing income increased $31.4 million compared to the third quarter of 2005. On a year to date basis, mortgage servicing income increased $84.4 million. The increase on a quarterly and year to date basis was primarily due to a larger servicing portfolio and the realization of the value embedded in mortgage servicing rights through the securitization and/or sale of a portion of the servicing rights. The sale/securitization of servicing rights resulted in a gain of $23.9 million for the third quarter of 2006 and a gain of $66.0 million for the first nine months of 2006. Total loans serviced for others were $83.1 billion and $64.5 billion as of September 30, 2006 and 2005, respectively.

Other income increased $6.4 million, or 8.6%, compared to the third quarter of 2005. Contributing to the quarterly increase was a $5.0 million increase in gains on the sales of student loans. On a year to date basis, other noninterest income increased $33.5 million, or 17.0%, primarily due to increased Affordable Housing revenue due to an increase in the number of properties owned. Also contributing to the increase were several miscellaneous gains from the first nine months of 2006: a $4.4 million gain related to the conversion of SunTrust’s membership in the New York Stock Exchange into equity securities; a $3.6 million net gain on the sale of First Market; and a $3.8 million gain from proceeds related to MasterCard’s initial public offering.


Noninterest Income		Table 3


	Three Months Ended September 30				% Change¹		Nine Months Ended September 30				% Change¹
(Dollars in millions) (Unaudited)	2006		2005		% Change¹		2006		2005		% Change¹
Service charges on deposit accounts	$194.3		$198.3		(2.1	)	$572.1		$575.7		(0.6	)
Trust and investment management income	173.7		168.8		2.9		517.6		500.8		3.4
Retail investment services	55.5		52.3		6.3		169.0		160.0		5.6
Other charges and fees	113.3		117.3		(3.4	)	339.7		341.0		(0.4	)
Card fees	64.9		52.9		22.7		183.5		153.1		19.8
Mortgage production related income	50.3		65.8		(23.5	)	170.0		110.1		54.4
Mortgage servicing related income	36.6		5.2		NM		112.7		28.3		NM
Investment banking income	47.0		53.1		(11.4	)	159.3		156.8		1.6
Trading account profits and commissions	20.4		41.8		(51.2	)	103.5		117.7		(12.1	)
Net gain on sale of Bond Trustee business	112.8		—		100.0		112.8		—		100.0
Net gain on sale of RCM assets	—		3.5		(100.0	)	—		23.4		(100.0	)
Securities gains/(losses), net	(91.8	)	(2.1	)	NM		(85.9	)	(7.8	)	NM
Other income	81.9		75.5		8.6		231.5		198.0		17.0

Total noninterest income	$858.9		$832.4		3.2		$2,585.8		$2,357.1		9.7

¹	NM - Any change over 100 percent is labeled as “NM”. Those changes over 100 percent were not considered to be meaningful.

Noninterest Expense

Noninterest expense increased $28.4 million, or 2.4%, compared to the third quarter of 2005. Compared to the third quarter of 2005, total personnel expense increased $42.0 million, or 6.6%. The increase was primarily due to merit increases, contract programming, higher pension expense, and increased headcount; offset by lower revenue based incentive costs. Headcount increased from 33,013 as of September 30, 2005, to 34,293 as of September 30, 2006 primarily due to increased revenue generating headcount in the Mortgage and Retail lines of business. The decrease in incentives was primarily due to a decrease in commission and performance based incentive costs in the CIB, Retail, and Mortgage lines of business.

Noninterest expense increased $162.3 million, or 4.7%, compared to the first nine months of 2005. Total personnel expense increased $178.0 million, or 9.4%, due to the same drivers as the quarter over quarter increase with the exception of higher commission and performance based incentive costs on a year to date basis.

Net occupancy expense increased $6.1 million, or 7.7%, compared to the third quarter of 2005 and increased $19.5 million, or 8.5%, compared to the first nine months of 2005. These increases were driven by higher rent related to new offices and branches, higher leasehold improvements, and utility costs.

Outside processing and software increased $5.7 million, or 6.2%, compared to the third quarter of 2005 and increased $26.9 million, or 10.2%, compared to the first nine months of 2005. The increase for the three months and nine months ended September 30, 2006 was mainly due to higher processing costs associated with higher transaction volumes and higher software maintenance costs.

Marketing and customer development expense decreased $2.8 million, or 7.0%, compared to the third quarter of 2005, and increased $21.4 million, or 20.1%, compared to the first nine months of 2005. The decrease compared to the third quarter of 2005 was primarily related to the timing of various marketing initiatives. For the nine months ended September 30, 2006, the increase was primarily due to the Company’s marketing campaigns focusing on customer acquisition and deposit promotion.

Consulting and legal expense decreased $0.3 million, or 1.1%, for the third quarter of 2006 compared to the third quarter of 2005, and increased $13.0 million, or 18.2%, for the nine months ended September 30, 2006 compared to the nine months ended September 30, 2005. The increase was due to higher consulting expense primarily attributable to initiatives undertaken to enhance the Company’s risk management processes. Amortization of intangible assets decreased $3.9 million, or 13.3%, compared to the third quarter of 2005 and decreased $11.9 million, or 13.1%, compared to the first nine months of 2005 due to lower core deposit intangible amortization.

Noninterest expense was further impacted by a $5.1 million, or 24.3%, increase in credit and collection services primarily due to higher loan closing costs from increased loan volumes. Compared to the first nine months of 2005, credit and collection services increased $16.5 million, or 28.0%, due to the same driver as the quarter over quarter increase. Other expense declined $15.5 million, or 13.9%, compared to the third quarter of 2005 and $16.7 million, or 5.8%, on a year to date basis primarily due to a $25.7 million impairment charge on Affordable Housing properties in the third quarter of 2005. Included in the third quarter of 2005 and the first nine months of 2005 was merger expense of $12.1 million and $92.1 million, respectively. As of December 31, 2005, the Company had recognized all merger expense related to the NCF integration process.

The efficiency ratio was up from 58.6% in the third quarter of 2005 to 59.3% in the third quarter of 2006. The ratio improved for the nine months ended September 30, 2006, compared to the nine months ended September 30, 2005, from 60.0% to 59.3%. The efficiency ratio excluding merger expense was up from 58.0% in the third quarter of 2005 and 58.4% in the first nine months of 2005.


Noninterest Expense		Table 4


	Three Months Ended September 30				% Change		Nine Months Ended September 30				% Change
(Dollars in millions) (Unaudited)	2006		2005		% Change		2006		2005		% Change
Employee compensation	$560.4		$538.7		4.0		$1,689.9		$1,565.5		7.9
Employee benefits	113.9		93.6		21.7		378.5		324.9		16.5

Total personnel expense	674.3		632.3		6.6		2,068.4		1,890.4		9.4
Net occupancy expense	85.6		79.5		7.7		248.4		228.9		8.5
Outside processing and software	98.7		93.0		6.2		292.0		265.1		10.2
Equipment expense	50.2		50.1		0.3		147.8		154.5		(4.4	)
Marketing and customer development	35.9		38.7		(7.0	)	128.0		106.6		20.1
Consulting and legal	30.0		30.3		(1.1	)	84.8		71.8		18.2
Credit and collection services	26.2		21.1		24.3		75.7		59.2		28.0
Amortization of intangible assets	25.8		29.7		(13.3	)	78.9		90.8		(13.1	)
Postage and delivery	22.8		21.6		5.4		69.4		63.4		9.5
Other staff expense	21.8		19.4		12.5		71.6		58.2		23.0
Communications	19.3		20.2		(4.4	)	54.5		61.0		(10.7	)
Operating supplies	13.1		13.3		(1.3	)	40.9		39.7		3.0
FDIC premiums	5.9		5.4		10.1		17.1		17.8		(3.6	)
Merger expense	—		12.1		(100.0	)	—		92.1		(100.0	)
Other real estate income	—		(1.0	)	(97.5	)	(0.3	)	(1.3	)	(74.4	)
Other expense	95.9		111.4		(13.9	)	268.9		285.6		(5.8	)

Total noninterest expense	$1,205.5		$1,177.1		2.4		$3,646.1		$3,483.8		4.7

Year-over-year growth rate	2.4	%	—				4.7	%	—
Year-over-year growth rate excluding merger expense	3.5		—

Table of Contents

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Table of Contents

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Table of Contents

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Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents