Edgar Filing: SUNTRUST BANKS INC

FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2008 or

¨ 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, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer x		Accelerated filer ¨
Non-accelerated filer ¨		Smaller reporting company ¨

(Do not check if a smaller reporting company)

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

At October 31, 2008, 354,109,279 shares of the Registrant's Common Stock, $1.00 par value, were outstanding.

Tables of Contents


PART I FINANCIAL INFORMATION
			Page
	Item 1.	Financial Statements (Unaudited)	3
		Consolidated Statements of Income	3
		Consolidated Balance Sheets	4
		Consolidated Statements of Shareholders’ Equity	5
		Consolidated Statements of Cash Flows	6
		Notes to Consolidated Financial Statements	7

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	40
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	87
	Item 4.	Controls and Procedures	87

PART II OTHER INFORMATION

	Item 1.	Legal Proceedings	88
	Item 1A.	Risk Factors	88
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	88
	Item 3.	Defaults Upon Senior Securities	89
	Item 4.	Submission of Matters to a Vote of Security Holders	89
	Item 5.	Other Information	89
	Item 6.	Exhibits	90

SIGNATURES			91

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 accounting principles generally accepted 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 month periods ended September 30, 2008 are not necessarily indicative of the results that may be expected for the full year 2008.

Item 1. FINANCIAL STATEMENTS (UNAUDITED)

SunTrust Banks, Inc.

Consolidated Statements of Income


	Three Months Ended September 30				Nine Months Ended September 30
(Dollars in thousands, except per share data) (Unaudited)	2008		2007		2008		2007
Interest Income
Interest and fees on loans	$1,688,019		$2,017,051		$5,258,075		$5,987,839
Interest and fees on loans held for sale	64,937		155,642		236,437		529,773
Interest and dividends on securities available for sale
Taxable interest	153,006		150,033		462,523		364,736
Tax-exempt interest	10,852		10,764		33,395		32,197
Dividends¹	21,410		29,735		84,672		91,399
Interest on funds sold and securities purchased under agreements to resell	7,527		11,130		23,208		37,254
Interest on deposits in other banks	198		269		646		1,019
Trading account interest	71,365		140,668		243,055		543,002

Total interest income	2,017,314		2,515,292		6,342,011		7,587,219

Interest Expense
Interest on deposits	545,898		914,282		1,873,547		2,801,416
Interest on funds purchased and securities sold under agreements to repurchase	31,321		93,625		123,648		360,971
Interest on trading liabilities	8,830		3,433		21,463		12,089
Interest on other short-term borrowings	11,220		33,645		47,084		83,664
Interest on long-term debt	273,832		278,119		833,473		777,048

Total interest expense	871,101		1,323,104		2,899,215		4,035,188

Net interest income	1,146,213		1,192,188		3,442,796		3,552,031
Provision for loan losses	503,672		147,020		1,511,721		308,141

Net interest income after provision for loan losses	642,541		1,045,168		1,931,075		3,243,890

Noninterest Income
Service charges on deposit accounts	240,241		213,939		682,376		599,818
Trust and investment management income	147,477		175,242		465,898		514,180
Retail investment services	72,791		71,064		218,855		206,392
Other charges and fees	128,776		120,730		385,588		357,225
Card fees	78,138		70,450		230,465		203,225
Investment banking income	62,164		47,688		178,571		159,844
Trading account profits/(losses) and commissions	121,136		(31,187	)	100,048		75,451
Mortgage servicing related income	62,654		57,142		124,300		138,072
Mortgage production related income	50,028		12,950		199,085		68,617
Gain on sale of businesses	81,813		-		200,851		32,340
Gain on Visa IPO	-		-		86,305		-
Net gain on sale/leaseback of premises	-		-		37,039		-
Other noninterest income	66,958		80,130		184,106		260,080
Net securities gains	173,046		991		662,247		237,423

Total noninterest income	1,285,222		819,139		3,755,734		2,852,667

Noninterest Expense
Employee compensation	596,050		580,743		1,788,398		1,741,946
Employee benefits	100,160		97,022		334,852		345,432
Outside processing and software	132,361		105,132		348,731		305,538
Net occupancy expense	88,745		87,626		260,669		258,533
Equipment expense	51,931		51,532		155,317		154,764
Marketing and customer development	217,693		46,897		320,599		135,928
Amortization/impairment of intangible assets	18,551		24,820		104,001		73,266
Net loss on extinguishment of debt	-		9,800		11,723		9,800
Visa litigation	20,000		-		(19,124	)	-
Operating losses	135,183		52,041		210,100		91,213
Other noninterest expense	307,412		235,632		786,497		662,016

Total noninterest expense	1,668,086		1,291,245		4,301,763		3,778,436

Income before provision/(benefit) for income taxes	259,677		573,062		1,385,046		2,318,121
Provision/(benefit) for income taxes	(52,767	)	152,898		241,685		695,230

Net income	312,444		420,164		1,143,361		1,622,891
Preferred stock dividends	5,111		7,526		17,200		22,408

Net Income Available to Common Shareholders	$307,333		$412,638		$1,126,161		$1,600,483

Net income per average common share
Diluted	$0.88		$1.18		$3.22		$4.52
Basic	0.88		1.19		3.23		4.57

Dividends declared per common share	0.77		0.73		2.31		2.19

Average common shares - diluted	350,970		349,592		349,613		354,244
Average common shares - basic	349,916		346,150		348,409		350,501
¹Includes dividends on common stock of The Coca-Cola Company	$11,400		$14,843		$44,520		$46,077

See Notes to Consolidated Financial Statements (unaudited).

SunTrust Banks, Inc.

Consolidated Balance Sheets


	As of
(Dollars in thousands) (Unaudited)	September 30 2008		December 31 2007
Assets
Cash and due from banks	$3,065,268		$4,270,917
Interest-bearing deposits in other banks	65,025		24,355
Funds sold and securities purchased under agreements to resell	1,440,234		1,347,329

Cash and cash equivalents	4,570,527		5,642,601
Trading assets	8,936,540		10,518,379
Securities available for sale¹	14,533,075		16,264,107
Loans held for sale (loans at fair value: $3,368,548 as of September 30, 2008; $6,325,160 as of December 31, 2007)	4,759,761		8,851,695
Loans (loans at fair value: $302,280 as of September 30, 2008; $220,784 as of December 31, 2007)	126,718,395		122,318,994
Allowance for loan and lease losses	(1,941,000	)	(1,282,504	)

Net loans	124,777,395		121,036,490
Premises and equipment	1,518,451		1,595,691
Goodwill	7,062,869		6,921,493
Other intangible assets	1,389,965		1,362,995
Customers' acceptance liability	24,703		22,418
Other real estate owned	387,037		183,753
Other assets	6,816,437		7,174,311

Total assets	$174,776,760		$179,573,933


Liabilities and Shareholders' Equity
Noninterest-bearing consumer and commercial deposits	$21,487,853		$21,083,234
Interest-bearing consumer and commercial deposits	80,341,088		80,786,791

Total consumer and commercial deposits	101,828,941		101,870,025
Brokered deposits (CDs at fair value: $420,822 as of September 30, 2008; $234,345 as of December 31, 2007)	9,141,001		11,715,024
Foreign deposits	4,941,939		4,257,601

Total deposits	115,911,881		117,842,650
Funds purchased	2,388,629		3,431,185
Securities sold under agreements to repurchase	4,090,085		5,748,277
Other short-term borrowings (debt at fair value: $125,108 as of September 30, 2008; $0 as of December 31, 2007)	2,728,307		3,021,358
Long-term debt (debt at fair value: $6,633,658 as of September 30, 2008; $7,446,980 as of December 31, 2007)	23,857,828		22,956,508
Acceptances outstanding	24,703		22,418
Trading liabilities	1,924,013		2,160,385
Other liabilities	5,895,289		6,338,634

Total liabilities	156,820,735		161,521,415


Preferred stock, no par value (liquidation preference of $100,000 per share)	500,000		500,000
Common stock, $1.00 par value	372,799		370,578
Additional paid in capital	6,783,976		6,707,293
Retained earnings	10,959,830		10,646,640
Treasury stock, at cost, and other	(1,548,870	)	(1,779,142	)
Accumulated other comprehensive income, net of tax	888,290		1,607,149

Total shareholders' equity	17,956,025		18,052,518

Total liabilities and shareholders' equity	$174,776,760		$179,573,933


Common shares outstanding	353,962,785		348,411,163
Common shares authorized	750,000,000		750,000,000
Preferred shares outstanding	5,000		5,000
Preferred shares authorized	50,000,000		50,000,000
Treasury shares of common stock	18,836,584		22,167,235

¹Includes net unrealized gains on securities available for sale	$1,519,449		$2,724,643

See Notes to Consolidated Financial Statements (unaudited).

SunTrust Banks, Inc.

Consolidated Statements of Shareholders’ Equity


(Dollars and shares in thousands, except per share data) (Unaudited)	Preferred Stock	Common Shares Outstanding		Common Stock	Additional Paid in Capital		Retained Earnings		Treasury Stock and Other¹		Other Comprehensive Income		Total
Balance, January 1, 2007	$500,000	354,903		$370,578	$6,627,196		$10,541,152		($1,151,269	)	$925,949		$17,813,606
Net income	-	-		-	-		1,622,891		-		-		1,622,891
Other comprehensive income:
Change in unrealized gains (losses) on derivatives, net of taxes	-	-		-	-		-		-		25,838		25,838
Change in unrealized gains (losses) on securities, net of taxes	-	-		-	-		-		-		33,000		33,000
Change related to employee benefit plans	-	-		-	-		-		-		40,100		40,100

Total comprehensive income													1,721,829
Common stock dividends, $2.19 per share	-	-		-	-		(772,920	)	-		-		(772,920	)
Preferred stock dividends, $4,482 per share	-	-		-	-		(22,408	)	-		-		(22,408	)
Exercise of stock options and stock compensation element expense	-	2,566		-	(2,622	)	-		193,179		-		190,557
Acquisition of treasury stock	-	(10,758	)	-	71,267		-		(924,652	)	-		(853,385	)
Performance and restricted stock activity	-	751		-	9,022		(3,533	)	(9,347	)	-		(3,858	)
Amortization of compensation element of performance and restricted stock	-	-		-	-		-		24,046		-		24,046
Issuance of stock for employee benefit plans	-	606		-	4,078		-		46,272		-		50,350
Adoption of SFAS No. 159	-	-		-	-		(388,604	)	-		147,374		(241,230	)
Adoption of SFAS No. 157	-	-		-	-		(10,943	)	-		-		(10,943	)
Adoption of FIN 48	-	-		-	-		(41,844	)	-		-		(41,844	)
Adoption of FSP FAS 13-2	-	-		-	-		(26,273	)	-		-		(26,273	)
Pension plan changes and resulting remeasurement	-	-		-	-		-		-		79,707		79,707
Other activity	-	6		-	61		(459	)	411		-		13

Balance, September 30, 2007	$500,000	348,074		$370,578	$6,709,002		$10,897,059		($1,821,360	)	$1,251,968		$17,907,247


Balance, January 1, 2008	$500,000	348,411		$370,578	$6,707,293		$10,646,640		($1,779,142	)	$1,607,149		$18,052,518
Net income	-	-		-	-		1,143,361		-		-		1,143,361
Other comprehensive income:
Change in unrealized gains (losses) on derivatives, net of taxes	-	-		-	-		-		-		4,089		4,089
Change in unrealized gains (losses) on securities, net of taxes	-	-		-	-		-		-		(733,952	)	(733,952	)
Change related to employee benefit plans	-	-		-	-		-		-		11,004		11,004

Total comprehensive income													424,502
Issuance of common stock for GB&T acquisition	-	2,221		2,221	152,292		-		-		-		154,513
Common stock dividends, $2.31 per share	-	-		-	-		(812,971	)	-		-		(812,971	)
Preferred stock dividends, $3,440 per share	-	-		-	-		(17,200	)	-		-		(17,200	)
Exercise of stock options and stock compensation element expense	-	439		-	2,251		-		35,314		-		37,565
Performance and restricted stock activity	-	1,609		-	(40,378	)	-		40,314		-		(64	)
Amortization of compensation element of performance and restricted stock	-	-		-	-		-		52,490		-		52,490
Issuance of stock for employee benefit plans	-	1,282		-	(37,983	)	-		102,154		-		64,171
Other activity	-	-		-	501		-		-		-		501

Balance, September 30, 2008	$500,000	353,962		$372,799	$6,783,976		$10,959,830		($1,548,870	)	$888,290		$17,956,025

1	Balance at September 30, 2008 includes $1,413,849 for treasury stock and $135,021 for compensation element of restricted stock.

Balance at September 30, 2007 includes $1,716,247 for treasury stock and $105,113 for compensation element of restricted stock.

See Notes to Consolidated Financial Statements (unaudited).

SunTrust Banks, Inc.

Consolidated Statements of Cash Flows


	Nine Months Ended September 30
(Dollars in thousands) (unaudited)	2008		2007
Cash Flows from Operating Activities:
Net income	$1,143,361		$1,622,891
Adjustments to reconcile net income to net cash provided by operating activities:
Net gain on sale of businesses	(200,851	)	(32,340	)
Visa litigation expense reversal	(19,124	)	-
Expense recognized on contribution of common stock of The Coca-Cola Company	183,418		-
Depreciation, amortization and accretion	673,581		598,691
Gain on sale of mortgage servicing rights	(16,922	)	(32,010	)
Origination of mortgage servicing rights	(396,590	)	(497,058	)
Provisions for loan losses and foreclosed property	1,564,873		318,229
Amortization of compensation element of performance and restricted stock	52,490		24,046
Stock option compensation	15,391		18,033
Excess tax benefits from stock-based compensation	(786	)	(11,116	)
Net loss on extinguishment of debt	11,723		9,800
Net securities gains	(662,247	)	(237,423	)
Net gain on sale/leaseback of premises	(37,039	)	-
Net gain on sale of assets	(2,528	)	(40,005	)
Originated and purchased loans held for sale net of principal collected	(26,378,420	)	(40,551,286	)
Sales and securitizations of loans held for sale	29,847,452		44,352,229
Net increase in other assets	(1,644,983	)	(3,763,808	)
Net (decrease) increase in other liabilities	(815,936	)	2,020,700

Net cash provided by operating activities	3,316,863		3,799,573

Cash Flows from Investing Activities:
Seix contingent consideration payout	-		(42,287	)
Proceeds from sale of businesses	297,211		-
Net cash equivalents acquired in/(paid for) acquisitions	70,746		(10,576	)
Proceeds from maturities, calls and repayments of securities available for sale	1,066,923		820,613
Proceeds from sales of securities available for sale	2,047,309		995,458
Purchases of securities available for sale	(1,915,327	)	(6,664,759	)
Proceeds from maturities, calls and repayments of trading securities	3,620,326		11,195,147
Proceeds from sales of trading securities	3,004,185		18,986,058
Purchases of trading securities	(3,195,164	)	(18,695,638	)
Loan originations net of principal collected	(4,813,139	)	(6,139,469	)
Proceeds from sale of loans	933,476		5,514,656
Proceeds from sale of mortgage servicing rights	148,378		210,327
Capital expenditures	(141,381	)	(108,920	)
Proceeds from the sale/leaseback of premises	288,851		-
Proceeds from the sale of other assets	252,759		116,322

Net cash provided by investing activities	1,665,153		6,176,932

Cash Flows from Financing Activities:
Net decrease in consumer and commercial deposits	(1,681,823	)	(937,338	)
Net decrease in foreign and brokered deposits	(1,888,211	)	(7,220,080	)
Assumption of First Priority Bank deposits, net	160,517		-
Net decrease in funds purchased, securities sold under agreements to repurchase, and other short term borrowings	(3,069,088	)	(3,848,352	)
Proceeds from the issuance of long-term debt	4,838,704		4,697,020
Repayment of long-term debt	(3,606,978	)	(1,350,024	)
Proceeds from the issuance of preferred stock	-		290
Proceeds from the exercise of stock options	22,174		172,524
Acquisition of treasury stock	-		(853,385	)
Excess tax benefits from stock-based compensation	786		11,116
Common and preferred dividends paid	(830,171	)	(795,328	)

Net cash used in financing activities	(6,054,090	)	(10,123,557	)

Net decrease in cash and cash equivalents	(1,072,074	)	(147,052	)
Cash and cash equivalents at beginning of period	5,642,601		5,307,745

Cash and cash equivalents at end of period	$4,570,527		$5,160,693


Supplemental Disclosures:
Securities transferred from available for sale to trading	$-		$15,143,109
Loans transferred from loans to loans held for sale	451,132		4,054,246
Loans transferred from loans held for sale to loans	642,268		-
Issuance of common stock for acquisition of GB&T	154,513		-
Gain on contribution of common stock of The Coca-Cola Company	183,418		-

See Notes to Consolidated Financial Statements (unaudited).

Notes to Consolidated Financial Statements (Unaudited)

Note 1 – Significant Accounting Policies

Basis of Presentation

The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete consolidated financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair statement of the results of operations in these financial statements, have been made. Effective May 1, 2008, SunTrust Banks, Inc. (“SunTrust” or the “Company”) acquired GB&T Bancshares, Inc. (“GB&T”). The acquisition was accounted for under the purchase method of accounting with the results of operations for GB&T included in those of the Company beginning May 1, 2008.

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

These financial statements should be read in conjunction with the Annual Report on Form 10-K for the year ended December 31, 2007. Except for accounting policies that have been modified or recently adopted as described below, there have been no significant changes to the Company’s Accounting Policies as disclosed in the Annual Report on Form 10-K for the year ended December 31, 2007.

Allowance for Loan and Lease Losses

The Company’s allowance for loan and lease losses is the amount considered adequate to absorb probable losses within the portfolio based on management’s evaluation of the size and current risk characteristics of the loan portfolio. Such evaluation considers numerous factors, including, but not limited to prior loss experience, the risk rating distribution of the portfolios, the impact of current internal and external influences on credit loss and the levels of nonperforming loans. Specific allowances for loan and lease losses are established for large commercial and commercial real estate impaired loans that are evaluated on an individual basis. The specific allowance established for these loans and leases is based on a thorough analysis of the most probable source of repayment, including the present value of the loan’s expected future cash flows, the loan’s estimated market value, or the estimated fair value of the underlying collateral depending on the most likely source of repayment. General allowances are established for loans and leases grouped into pools based on similar characteristics. In this process, general allowance factors established are based on an analysis of historical charge-off experience and expected loss given default derived from the Company’s internal risk rating process. Other adjustments may be made to the allowance for the pools after an assessment of internal and external influences on credit quality that are not fully reflected in the historical loss or risk rating data.

The Company’s charge-off policy meets or is more stringent than regulatory minimums. Losses on unsecured consumer loans are recognized at 90-days past-due compared to the regulatory loss criteria of 120 days. Secured consumer loans, including residential real estate, are typically charged-off between 120 and 180 days, depending on the collateral type, in compliance with the Federal Financial Institutions Examination Council (“FFIEC”) guidelines. Commercial loans and commercial real estate loans are typically placed on nonaccrual when principal or interest is past-due for 90 days or more unless the loan is both secured by collateral having realizable value sufficient to discharge the debt in-full and the loan is in the legal process of collection. Accordingly, secured loans may be charged-down to the estimated value of the collateral with previously accrued unpaid interest reversed. Subsequent charge-offs may be required as a result of changes in the market value of collateral or other repayment prospects.

Accounting Policies Recently Adopted and Pending Accounting Pronouncements

In September 2006, the Emerging Issues Task Force (“EITF”) reached a consensus on EITF Issue No. 06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements.” Also, in March 2007, the EITF reached a consensus on EITF Issue No. 06-10, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Collateral Assignment Split-Dollar Life Insurance Arrangements.” The Company adopted EITF No. 06-4 and EITF No. 06-10

Notes to Consolidated Financial Statements (Unaudited) - Continued

effective January 1, 2008, and the adoption did not have an impact to the Company’s financial position and results of operations.

In April 2007, the Financial Accounting Standards Board (“FASB”) issued a Financial Statement Position (“FSP”) FASB Interpretation No. (“FIN”) 39-1, “Amendment of FASB Interpretation No. 39.” The Company adopted FSP FIN 39-1 effective January 1, 2008 and has elected not to offset fair value amounts related to collateral arrangements recognized for derivative instruments under master netting arrangements; therefore, the adoption did not have an impact to the Company’s financial position and results of operations. Under master netting arrangements, the Company is obligated to return collateral of $346.4 million and has the right to reclaim collateral of $544.7 million as of September 30, 2008.

In November 2007, the SEC issued Staff Accounting Bulletin (“SAB”) No. 109. SAB No. 109 is effective on a prospective basis for loan servicing activities related to derivative loan commitments issued or modified in fiscal quarters beginning after December 15, 2007. Effective January 1, 2008, the Company began including the value associated with the servicing of loans in the measurement of all written loan commitments issued after that date that are accounted for at fair value through earnings, and is expected to reduce the potential future liability of loan commitments. The adoption, net of other changes in the valuation of interest rate lock commitments (“IRLCs”), resulted in the acceleration of $18.3 million in mortgage-related income during the first quarter of 2008.

In February 2008, the FASB issued FSP FAS 140-3, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” The objective of the FSP is to provide guidance on accounting for a transfer of a financial asset and repurchase financing. The FSP presumes that an initial transfer of a financial asset and a repurchase financing are considered part of the same arrangement (linked transaction) under SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” However, if certain criteria are met, the initial transfer and repurchase financing shall not be evaluated as a linked transaction and shall be evaluated separately under SFAS No. 140. FSP FAS 140-3 is effective for annual and interim periods beginning after November 15, 2008 and early adoption is not permitted. The Company is currently evaluating the provisions of this standard, but does not expect adoption to have a material impact on its financial position and results of operations.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities,” which amends SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and expands the derivative-related disclosure requirements. SFAS No. 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures in tabular format of the fair values of derivative instruments and their gains and losses, and disclosures about credit-risk related contingent features in derivative agreements. The standard also amended SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” to clarify the disclosure requirements with respect to derivative counterparty credit risk. SFAS No. 161 is effective for annual and interim periods beginning after November 15, 2008. The Company is in the process of evaluating SFAS No. 161 and evaluating the necessary process and technology changes, if any, in order to accumulate the requisite information.

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles.” SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of non-governmental entities that are presented in conformity with U.S. GAAP. SFAS No. 162 is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.” The Company does not anticipate that SFAS No. 162 will have an impact on its financial position and results of operations.

In May 2008, the FASB issued FSP APB 14-1, “Accounting for Convertible Debt Instruments That May be Settled in Cash upon Conversion (Including Partial Cash Settlement).” The FSP requires that the liability and equity components of convertible debt instruments that may be settled in cash upon conversion be separately accounted for in a manner that reflects the issuer’s nonconvertible debt borrowing rate. FSP APB 14-1 is effective for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years. Retrospective application to all periods presented is required except for instruments that were not outstanding during any of the periods that will be presented in the annual financial statements for the period of adoption but were outstanding during an earlier period. The Company is currently assessing the impact of adopting FSP APB 14-1 and does not expect the adoption of this standard to have an impact on any of its existing debt or equity instruments.

In June 2008, the FASB issued FSP No. EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” The FSP concludes that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are participating securities that should be included in the earnings allocation in computing earnings per share under the two-class method. The FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years. All prior period earnings per share data presented must be adjusted

Notes to Consolidated Financial Statements (Unaudited) - Continued

retrospectively. The Company is currently assessing the impact of adopting FSP No. EITF 03-6-1.

In September 2008, the FASB issued three separate but related exposure drafts for proposed amendments to SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”, proposed amendments to FASB Interpretation No. (“FIN”) 46(R), “Consolidation of Variable Interest Entities”, and proposed FSP No. FAS 140-e and FIN 46(R)-e.

The proposed amendments to SFAS No. 140, among other amendments to the sale criteria on SFAS No. 140, eliminate the concept of a qualifying special-purpose entity (“QSPE”) and would require an existing QSPE to be analyzed for consolidation according to FIN 46R. In addition, the proposed amendments introduce the concept of a “participating interest”, which establishes specific conditions for reporting the transfer of a portion of a financial asset as a sale.

The proposed amendments to FIN 46(R) are intended to change the consolidation model for determining which enterprise should consolidate a variable interest entity (“VIE”) from primarily an economic focus to a control and economic focus. Under the proposed amendment, companies must first make a qualitative assessment to determine the primary beneficiary, if any, of a VIE and a quantitative analysis is only required if the qualitative assessment fails to conclusively identify whether the reporting entity is the primary beneficiary. The proposed statement would be effective for the first interim reporting period of 2010.

The proposed FSP No. FAS 140-E and FIN 46(R)-E would require enhanced disclosures in advance of the effective dates of the amendments to SFAS No. 140 and FIN 46(R). The intent of the enhanced disclosures is to provide more transparency regarding an entity’s continuing involvement with transferred financial assets and an entity’s involvement with variable interest entities. In addition, the FSP would require certain disclosures by a public entity that is (a) a sponsor that has a variable interest in a VIE, irrespective of the significance of the variable interest, and (b) an enterprise that holds a significant variable interest in a QSPE but was not the transferor of financial assets to the QSPE. The proposed FSP would be effective the first reporting period that ends after the FSP is issued.

The Company is currently assessing the impact that these proposed amendments and FSP will have on our financial statements.

In October 2008, the FASB issued FSP FAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active”. The FSP applies to financial assets that are in the scope of SFAS No. 157, “Fair Value Measurements”, to clarify its application in an inactive market. The FSP addresses how management’s internal assumptions should be considered when measuring fair value in cases where relevant observable data does not exist, how observable market information in inactive markets should be considered when measuring fair value, and how the use of market quotes should be considered when assessing the relevance of observable and unobservable data available to measure fair value. The FSP clarifies that in inactive markets there may be more reliance placed upon the use of management’s internal assumptions (a lLevel 3 fair value measurement), but regardless of the valuation technique, an entity should include the appropriate risk adjustments that market participants would make for nonperformance and liquidity risks. The FSP is effective upon issuance, including prior periods for which financial statements have not been issued. The FSP is consistent with the Company’s application of SFAS No. 157, therefore the issuance of the standard did not impact the Company’s financial position or results of operations for the period ended September 30, 2008.

Notes to Consolidated Financial Statements (Unaudited) - Continued

Note 2 – Acquisitions / Dispositions


(in millions)	Date	Cash or other consideration (paid)/ received		Goodwill		Other Intangibles		Gain/ (Loss)	Comments
For the Nine Months Ended September 30, 2008
Purchase of remaining interest in Zevenbergen Capital Investments, LLC	9/30/08	($22.6	)	$20.7		$-		$-	Goodwill recorded is tax-deductible.
Sale of TransPlatinum Service Corp.	9/2/08	100.0		(10.5	)	-		81.8
Sale of First Mercantile Trust Company	5/30/08	59.1		(11.7	)	(3.0	)	29.6
Acquisition of GB&T Bancshares, Inc ¹	5/1/08	(154.6	)	137.6		29.5		-	Goodwill and intangibles recorded are non tax-deductible.
Sale of 24.9% interest in Lighthouse Investment Partners, LLC ("Lighthouse Investment Partners")	1/2/08	155.0		-		(6.0	)	89.4	SunTrust will continue to earn a revenue share based upon client referrals to the funds.

For the Nine Months Ended September 30, 2007
Acquisition of TBK Investments, Inc.	8/31/07	(19.2	)	10.6		6.5		-	Goodwill and intangibles recorded are non tax-deductible.
Lighthouse Partners, LLC, a wholly owned subsidiary, was merged with and into Lighthouse Investment Partners	3/30/07	91.6		(48.5	)	24.1		32.3	SunTrust received a 24.9% interest in Lighthouse Investment Partners.
Contingent consideration paid to the former owners of Prime Performance, Inc. ("Prime Performance"), a company formerly acquired by National Commerce Financial Corporation ("NCF")	3/12/07	(7.0	)	7.0		-		-	Obligations to the former owners of Prime Performance were fully discharged.
Contingent consideration paid to the former owners of Seix Investment Advisors, Inc. ("Seix")	2/23/07	(42.3	)	42.3		-		-	Goodwill recorded is tax-deductible.
Contingent consideration paid to the former owners of Sun America Mortgage ("SunAmerica")	2/13/07	(1.4	)	1.4		-		-	Goodwill recorded is tax-deductible.
GenSpring Holdings, Inc. called minority member owned interests in GenSpring Family Offices, LLC	Various	(12.4	)	10.2		2.2		-	Goodwill and intangibles recorded are tax-deductible.

1 On May 1, 2008, SunTrust acquired 100% of the outstanding common shares of GB&T Bancshares, Inc. ("GB&T"), a North Georgia-based financial institution serving commercial and retail customers, for $154.6 million, including cash paid for fractional shares. In connection therewith, GB&T shareholders received 0.1562 shares of the Company’s common stock for each share of GB&T’s common stock, resulting in the issuance of approximately 2.2 million shares of SunTrust common stock. As a result of the acquisition, SunTrust acquired approximately $1.4 billion of loans, primarily commercial real estate loans, and assumed approximately $1.4 billion of deposit liabilities. SunTrust elected to account for $171.6 million of the acquired loans at fair value in accordance with SFAS No. 159. The remaining loans are accounted for at amortized cost and had a carryover reserve for loan and lease losses of $158.7 million. Additionally, SunTrust recorded $29.5 million of core deposit intangible assets and $137.6 million of goodwill. The acquisition was accounted for under the purchase method of accounting with the results of operations for GB&T included in SunTrust’s results beginning May 1, 2008.

Notes to Consolidated Financial Statements (Unaudited) - Continued

Note 3 – Securities Available for Sale

During the first six months of 2008, the Company recorded $71.5 million in other-than-temporary impairment charges within securities gains/(losses), primarily related to $296.2 million in residential mortgage-backed securities and residual interests in which the default rates and loss severities of the underlying collateral, including subprime and Alt-A loans, increased significantly during the first half of the year. In addition to securities outside the scope of EITF 99-20, “Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets,” the impairment recorded included all of the Company’s securities that were within the scope of EITF 99-20, for which there has been an adverse change in estimated cash flows for purposes of determining fair value. During the third quarter of 2008, there were further declines in the market values of those other-than-temporarily impaired securities. In addition, certain investment grade securities within the portfolio that had not been other-than-temporarily impaired previously had significant declines in market values resulting in other-than-temporary impairments. As a result, during the third quarter of 2008, the Company recorded an additional $10.3 million in market value impairment charges related primarily to $35.0 million in residual interests and residential mortgage-backed securities collateralized by loans. These securities were valued using third party pricing data, including broker indicative bids. There were no similar charges recorded during the three or nine months ended September 30, 2007.

In June 2008, the Company sold 10 million shares of its holdings in The Coca-Cola Company (“Coke”). The sale of these shares generated approximately $549 million in net cash proceeds and before-tax gains, and an after-tax gain of approximately $345 million that is recorded in the Company’s financial results for the quarter ended June 30, 2008. In addition, these sales resulted in an increase of approximately $345 million, or approximately 20 basis points, to the Tier 1 Capital ratio as of the transaction date.

In July 2008, the Company contributed 3.6 million shares of its holdings in Coke to a charitable foundation. The contribution resulted in a $183.4 million non-taxable gain that is recorded in the Company’s financial results for the quarter ended September 30, 2008. In addition, the contribution increased Tier 1 Capital by $68.5 million, or approximately 4 basis points as of the transaction date, and will reduce ongoing charitable contribution expense.

Securities with unrealized losses at September 30, 2008 and December 31, 2007 were as follows:

September 30, 2008

Less than twelve months

Twelve months or longer

Total

(Dollars in thousands)

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

U.S. Treasury and other U.S. government agencies and corporations

$293,423

$5,454

$25

$293,448

$5,454

States and political subdivisions

389,217

14,597

16,511

1,140

405,728

15,737

Asset-backed securities

3,475

21,092

7,624

24,567

7,647

Mortgage-backed securities

1,824,915

91,890

15,299

577

1,840,214

92,467

Corporate bonds

209,877

26,340

33,779

3,601

243,656

29,941

Total securities with unrealized losses

$2,720,907

$138,304

$86,706

$12,942

$2,807,613

$151,246

December 31, 2007

Less than twelve months

Twelve months or longer

Total

(Dollars in thousands)

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

U.S. Treasury and other U.S. government agencies and corporations

$41

$9,968

$10,009

States and political subdivisions

47,666

264

102,888

1,189

150,554

1,453

Asset-backed securities

202,766

31,380

1,344

204,110

31,383

Mortgage-backed securities

683,475

5,104

808,551

11,223

1,492,026

16,327

Corporate bonds

43,954

1,370

32,001

279

75,955

1,649

Total securities with unrealized losses

$977,902

$38,118

$954,752

$12,695

$1,932,654

$50,813

On September 30, 2008, the Company held certain investment securities having continuous unrealized loss positions for more than 12 months. Market changes in interest rates and credit spreads will result in temporary unrealized losses as the market price of securities fluctuate. The turmoil and illiquidity in the financial markets during 2008 increased market yields on securities as a result of credit spreads widening. The Company has the intent and ability to hold these securities until recovery and has reviewed them for other-than-temporary impairment in accordance with the accounting policies outlined in Note 1, “Significant Accounting Policies,” to the Consolidated Financial Statements contained within the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 and does not consider them to be other-than-temporarily impaired.

Note 4 – Allowance for Loan and Lease Losses

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

Notes to Consolidated Financial Statements (Unaudited) - Continued


	Three Months Ended September 30				% Change		Nine Months Ended September 30				% Change
(Dollars in thousands)	2008		2007		% Change		2008		2007		% Change
Balance at beginning of period	$1,829,400		$1,050,362		74.2	%	$1,282,504		$1,044,521		22.8	%
Allowance from GB&T acquisition	-		-		-		158,705		-		NA
Allowance associated with loans at fair value ¹	-		-		-		-		(4,100	)	(100.0	)
Provision for loan losses	503,672		147,020		242.6		1,511,721		308,141		390.6
Loan charge-offs	(419,724	)	(126,286	)	232.4		(1,097,985	)	(322,955	)	240.0
Loan recoveries	27,652		22,595		22.4		86,055		68,084		26.4

Balance at end of period	$1,941,000		$1,093,691		77.5	%	$1,941,000		$1,093,691		77.5	%

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

Note 5 – Premises and Equipment

During the nine months ended September 30, 2008, the Company completed sale/leaseback transactions, consisting of 152 branch properties and various individual office buildings. In total, during 2008, the Company sold and concurrently leased back $201.9 million in land and buildings with associated accumulated depreciation of $110.3 million. Net proceeds were $288.9 million, resulting in a gross gain, net of transaction costs, of $197.3 million. For the nine months ended September 30, 2008, the Company has recognized $37.0 million of immediate gain, all of which was recognized in the first quarter of 2008. The remaining $160.3 million in gains were deferred and will be recognized ratably over the expected term of the respective leases, which is 10 years.

Note 6 – Goodwill and Other Intangible Assets

Primarily as a result of continued deterioration in real estate-related market conditions, the Company evaluated the goodwill of certain reporting units in the first two quarters of 2008 and determined that no circumstances had occurred that would more likely than not cause the estimated fair values of the reporting units to be less than their carrying values. Risks and uncertainties in the market and economic environment intensified during the third quarter of 2008. As a result, the Company concluded that the adverse market conditions and potentially wide range of a reporting unit’s estimated fair value could cause a reporting unit’s carrying value to exceed its fair value. Consequently, the Company performed a comprehensive evaluation of each reporting unit’s estimated fair value. The estimated fair value of each reporting unit as of September 30, 2008 exceeded their respective carrying values; therefore, the Company determined there was no impairment of goodwill.

As discussed in Note 15, “Business Segment Reporting,” to the Consolidated Financial Statements, the Company made certain changes to the segment reporting structure, effective January 1, 2008, that resulted in new segment classifications. The changes in the carrying amount of goodwill by reportable segment for the nine months ended September 30 are as follows:


(Dollars in thousands)	Retail		Commercial		Retail & Commercial		Wholesale Banking		Corporate and Investment Banking		Mortgage		Wealth and Investment Management		Corporate Other and Treasury		Total
Balance, January 1, 2007	$4,891,473		$1,262,174		$-		$-		$147,469		$274,524		$307,390		$6,830		$6,889,860
NCF purchase adjustments ¹	(7,238	)	9,564		-		-		(50	)	(175	)	(88	)	(6,837	)	(4,824	)
Purchase of GenSpring Holdings, Inc. minority shares	-		-		-		-		-		-		10,148		-		10,148
SunAmerica contingent consideration	-		-		-		-		-		1,368		-		-		1,368
Prime Performance contingent consideration	7,034		-		-		-		-		-		-		-		7,034
Seix contingent consideration	-		-		-		-		-		-		42,287		-		42,287
Sale upon merger of Lighthouse Partners	-		-		-		-		-		-		(48,474	)	-		(48,474	)
FIN 48 adoption adjustment	3,042		840		-		-		39		138		69		7		4,135
GenSpring's acquisition of TBK Investments, Inc.	-		-		-		-		-		-		10,576		-		10,576

Balance, September 30, 2007	$4,894,311		$1,272,578		$0		$0		$147,458		$275,855		$321,908		$0		$6,912,110


Balance, January 1, 2008	$4,893,970		$1,272,483		$-		$-		$147,454		$275,840		$331,746		$-		$6,921,493
Intersegment transfers	(4,893,970	)	(1,272,483	)	5,780,742		522,667		(147,454	)	-		-		10,498		-
NCF purchase adjustments ¹	-		-		(2,023	)	(20	)	-		(71	)	1,675		325		(114	)
Inlign Wealth Management Investments, LLC purchase price adjustments¹	-		-		-		-		-		-		1,540		-		1,540
Sale of First Mercantile Trust Company	-		-		-		-		-		-		(11,734	)	-		(11,734	)
Acquisition of GB&T	-		-		137,646		-		-		-		-		-		137,646
Sale of TransPlatinum Service Corp.	-		-		-		-		-		-		-		(10,504	)	(10,504	)
Purchase of remaining interest in Zevenbergen Capital Investments, LLC	-		-		-		-		-		-		20,712		-		20,712
TBK Investments, Inc. purchase price adjustments ¹	-		-		-		-		-		-		1,000		-		1,000
SunAmerica contingent consideration	-		-		-		-		-		2,830		-		-		2,830

Balance, September 30, 2008	$-		$-		$5,916,365		$522,647		$-		$278,599		$344,939		$319		$7,062,869

¹SFAS No. 141 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. See Note 1 "Significant Accounting Policies," to the Consolidated Financial Statements contained in the 2007 Annual Report on Form 10-K for changes to be implemented upon adoption of SFAS No. 141( R ).

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

Notes to Consolidated Financial Statements (Unaudited) - Continued


(Dollars in thousands)	Core Deposit Intangibles		Mortgage Servicing Rights		Other		Total
Balance, January 1, 2007	$241,614		$810,509		$129,861		$1,181,984
Amortization	(53,242	)	(133,266	)	(20,024	)	(206,532	)
Mortgage Servicing Rights ("MSRs") originated	-		497,058		-		497,058
Intangible assets obtained from sale upon mergerof Lighthouse Partners, net ¹	-		-		24,142		24,142
Purchase of GenSpring Holdings, Inc. minority shares	-		-		2,205		2,205
Client relationship intangible obtained from GenSpring's acquisition of TBK Investments, Inc.	-		-		6,520		6,520
Sale of MSRs	-		(178,317	)	-		(178,317	)

Balance, September 30, 2007	$188,372		$995,984		$142,704		$1,327,060


Balance, January 1, 2008	$172,655		$1,049,425		$140,915		$1,362,995
Amortization	(43,761	)	(164,546	)	(15,240	)	(223,547	)
MSRs originated	-		396,590		-		396,590
MSRs impairment reserve	-		(1,881	)	-		(1,881	)
MSRs impairment recovery	-		1,881		-		1,881
Sale of interest in Lighthouse Partners	-		-		(5,992	)	(5,992	)
Sale of MSRs	-		(131,456	)	-		(131,456	)
Customer intangible impairment charge	-		-		(45,000	)	(45,000	)
Purchased credit card relationships ²	-		-		9,898		9,898
Acquisition of GB&T	29,510		-		-		29,510
Sale of First Mercantile Trust	-		-		(3,033	)	(3,033	)

Balance, September 30, 2008	$158,404		$1,150,013		$81,548		$1,389,965

¹During the first quarter of 2007 SunTrust merged its wholly-owned subsidiary, Lighthouse Partners, into Lighthouse Investment Partners, LLC in exchange for a minority interest in Lighthouse Investment Partners, LLC and a revenue-sharing agreement. This transaction resulted in a $7.9 million decrease in existing intangible assets and a new intangible asset of $32.0 million.

² During the third quarter of 2008, SunTrust purchased a credit card portfolio of loans including the cardholder relationships from another financial institution representing an outstanding balance of $82.4 million at the time of acquisition. A majority of the premium paid was attributed to the cardholder relationships and is being amortized over seven years.

Intangible assets subject to amortization must be tested for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. The Company experienced a triggering event with respect to certain Wealth and Investment Management customer relationship intangibles during the second quarter of 2008 and performed impairment testing which resulted in an impairment charge of $45.0 million. The fair value of the customer relationship intangibles was determined using the residual income method and was compared to the carrying value to determine the amount of impairment. The impairment charge was recorded in noninterest expense and pertains to the client relationships that were recorded in 2004 in connection with an acquisition. While the overall acquired business has performed satisfactorily, the attrition level of the legacy clients has recently increased resulting in the impairment of this intangible asset.

As of both September 30, 2008 and December 31, 2007, the fair values of Mortgage Servicing Rights (“MSRs”) were $1.4 billion. Contractually specified mortgage servicing fees and late fees earned for the three and nine months ended September 30, 2008 and 2007 were $92.9 million and $265.1 million, and $79.7 million and $231.8 million, respectively. These amounts are reported in mortgage servicing-related income in the Consolidated Statements of Income.

Notes to Consolidated Financial Statements (Unaudited) - Continued

Note 7 – Earnings Per Share


	Three Months Ended September 30		Nine Months Ended September 30
(In thousands, except per share data)	2008	2007	2008	2007
Net income	$312,444	$420,164	$1,143,361	$1,622,891
Preferred stock dividends	5,111	7,526	17,200	22,408

Net income available to common shareholders	$307,333	$412,638	$1,126,161	$1,600,483


Average basic common shares	349,916	346,150	348,409	350,501
Effect of dilutive securities:
Stock options	25	2,475	252	2,786
Performance and restricted stock	1,029	967	952	957

Average diluted common shares	350,970	349,592	349,613	354,244


Earnings per average common share—diluted	$0.88	$1.18	$3.22	$4.52

Earnings per average common share—basic	$0.88	$1.19	$3.23	$4.57

Note 8 – Income Taxes

The provision for income taxes was a benefit of $52.8 million for the third quarter of 2008. This represents a negative 20.3% effective tax rate for the third quarter of 2008. The decrease in the effective tax rate was attributable to the lower level of earnings that were generated during the three and nine months ended September 30, 2008. Additionally, in July 2008, the Company contributed 3.6 million shares of the Coke stock to the SunTrust Foundation, resulting in a $68.5 million tax benefit. This contribution was treated as a discrete item for income tax provision purposes, and contributed to the significant decrease in the effective tax rate for the third quarter.

As of September 30, 2008, the Company’s gross cumulative unrecognized tax benefits amounted to $336.6 million, of which $240.1 million (net of federal benefit) would affect the Company’s effective tax rate, if recognized, and $43.0 million would impact goodwill, if recognized. As of December 31, 2007, the Company’s gross cumulative unrecognized tax benefits amounted to $325.4 million. Additionally, the Company’s gross liability was $75.4 million and $80.0 million for interest related to its unrecognized tax benefits as of September 30, 2008 and December 31, 2007, respectively. Interest expense related to unrecognized tax benefits was $2.4 million and $26.9 million, respectively, for the three and nine month periods ended September 30, 2008, compared to $6.2 million and $23.2 million, respectively, for the same periods in 2007. The Company continually evaluates the unrecognized tax benefits associated with its uncertain tax positions. As of September 30, 2008, the Company does not anticipate a significant increase or decrease in the unrecognized tax benefits over the next twelve months. The Company did not materially engage in the type of lease transactions which have been the subject of recent judicial decisions and IRS announcements. Given the Company’s low transaction volume and established reserves, it is not expected that any future required reserve adjustments would create a significant financial impact to the Company.

The Company files consolidated and separate income tax returns in the United States Federal jurisdiction and in various state jurisdictions. The Company’s Federal returns through 2004 have been examined by the Internal Revenue Service (“IRS”) and issues for tax years 1997 through 2004 are still in dispute. The Company has paid the amounts assessed by the IRS in full for tax years 1997 and 1998 and have filed refund claims with the IRS related to the disputed issues for those two years. An IRS examination of the Company’s 2005 and 2006 Federal income tax returns is currently in progress. Generally, the state jurisdictions in which the Company files income tax returns are subject to examination for a period from three to seven years after returns are filed.

Note 9 – Employee Benefit Plans

Stock Based Compensation

The weighted average fair values of options granted during the first nine months of 2008 and 2007 were $8.46 per share and $7.08 per share, respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:

Notes to Consolidated Financial Statements (Unaudited) - Continued


	Nine Months Ended September 30
	2008		2007
Expected dividend yield	4.58	%	3.01	%
Expected stock price volatility	21.73		20.07
Risk-free interest rate (weighted average)	2.87		4.70
Expected life of options	6 years		6 years

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


	Stock Options				Performance and Restricted Stock
(Dollars in thousands except per share data)	Shares		Price Range	Weighted- Average Exercise Price	Shares		Deferred Compensation		Weighted- Average Grant Price
Balance, January 1, 2008	16,058,146		$17.06 - $85.06	$65.79	2,270,344		$90,622		$69.63
Granted	1,173,284		63.08 - 64.58	64.57	1,883,544		111,553		59.23
Exercised/vested	(457,914	)	18.77 - 65.33	51.06	(178,263	)	-		53.14
Cancelled/expired/forfeited	(842,814	)	31.80 - 154.61	68.53	(230,387	)	(14,664	)	63.67
Acquisition of GB&T	100,949		46.39 - 154.61	76.82	-		-		-
Amortization of compensation element of performance and restricted stock	-		-	-	-		(52,490	)	-

Balance, September 30, 2008	16,031,651		$17.06 - $150.45	$66.05	3,745,238		$135,021		$65.55

Exercisable, September 30, 2008	13,503,909			$65.01

Available for additional grant, September 30, 2008 ¹	11,126,349

¹Includes 4,204,946 shares available to be issued as restricted stock.

The following table presents information on stock options by ranges of exercise price at September 30, 2008:

(Dollars in thousands except per share data)


	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number Outstanding at September 30, 2008	Weighted- Average Exercise Price	Weighted- Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value	Number Exercisable at September 30, 2008	Weighted- Average Exercise Price	Weighted- Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value
$17.06 to $49.46	617,283	$43.54	3.14	$2,184	617,283	$43.54	3.14	$2,184
$49.47 to $64.57	5,434,417	56.54	3.45	-	5,423,833	56.53	3.46	-
$64.58 to $150.45	9,979,951	72.62	5.54	-	7,462,793	72.95	4.53	-

	16,031,651	$66.05	4.74	$2,184	13,503,909	$65.01	4.04	$2,184

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


	Three Months Ended September 30		Nine Months Ended September 30
(In thousands)	2008	2007	2008	2007
Stock-based compensation expense:
Stock options	$2,753	$3,979	$9,587	$12,836
Performance and restricted stock	22,946	8,074	52,490	24,524

Total stock-based compensation expense	$25,699	$12,053	$62,077	$37,360

The recognized stock-based compensation tax benefit amounted to $9.8 million and $4.6 million for the three months ended September 30, 2008 and 2007, respectively. For the nine months ended September 30, 2008 and 2007, the recognized stock-based compensation tax benefit was $23.6 million and $14.2 million, respectively.

In lieu of restricted stock grants, certain employees received long-term deferred cash awards during the first quarter of 2008, which were subject to a three-year vesting requirement. The accrual related to these cash grants was $6.6 million as of September 30, 2008.

Notes to Consolidated Financial Statements (Unaudited) - Continued

Retirement Plans

On February 13, 2007, the Retirement Benefits plans, Supplemental Benefits plans and the Postretirement Welfare plans were amended. The changes impacting these plans became effective on January 1, 2008.

The SunTrust Excess Plan was amended such that service prior to the date of entry is not credited for new participants on and after January 1, 2008. The criteria to become a participant in the SunTrust Excess Plan were changed, which resulted in 47 new participants on January 1, 2008.

SunTrust has not contributed to either of its noncontributory qualified retirement plans (“Retirement Benefits” plans) during the nine months ended September 30, 2008.

Anticipated employer contributions/benefit payments for 2008 are $5.8 million for the Supplemental Retirement Benefit plans. For the third quarter of 2008, the actual employer contributions/benefit payments totaled $1.2 million. Actual contributions/benefit payments for the nine months ended September 30, 2008 were $3.8 million.

SunTrust contributed $0.4 million to the Postretirement Welfare Plan during the nine months ended September 30, 2008.


	Three Months Ended September 30
	2008					2007
(Dollars in thousands)	Retirement Benefits		Supplemental Retirement Benefits	Other Postretirement Benefits		Retirement Benefits		Supplemental Retirement Benefits	Other Postretirement Benefits
Service cost	$19,067		$401	$155		$16,298		$502	$251
Interest cost	27,558		1,715	2,953		26,372		1,665	2,834
Expected return on plan assets	(46,414	)	-	(2,047	)	(46,977	)	-	(2,051	)
Amortization of prior service cost	(3,326	)	534	(390	)	(3,663	)	644	(391	)
Recognized net actuarial loss	5,059		497	3,188		7,801		877	3,773

Net periodic benefit cost	$1,944		$3,147	$3,859		($169	)	$3,688	$4,416


	Nine Months Ended September 30
	2008					2007
(Dollars in thousands)	Retirement Benefits		Supplemental Retirement Benefits	Other Postretirement Benefits		Retirement Benefits		Supplemental Retirement Benefits	Other Postretirement Benefits
Service cost	$57,201		$1,203	$464		$50,015		$1,521	$989
Interest cost	82,673		5,145	8,859		78,880		5,022	8,505
Expected return on plan assets	(139,241	)	-	(6,140	)	(139,378	)	-	(6,143	)
Amortization of prior service cost	(9,978	)	1,602	(1,169	)	(9,223	)	2,075	(978	)
Recognized net actuarial loss	15,178		1,491	9,562		23,580		2,641	10,511
Amortization of initial transition obligation	-		-	-		-		-	280
Partial settlement	-		-	-		60		-	-
Curtailment charge	-		-	-		-		-	11,586

Net periodic benefit cost	$5,833		$9,441	$11,576		$3,934		$11,259	$24,750

Note 10 – Variable Interest Entities

SunTrust assists in providing liquidity to select corporate clients by directing them to a multi-seller commercial paper conduit that the Company administers, 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 (“CP”). The result is an attractive funding arrangement for these clients.

As of September 30, 2008 and December 31, 2007, Three Pillars had assets that were not included on the Company’s Consolidated Balance Sheets of approximately $3.6 billion and $5.3 billion, respectively, consisting primarily of secured loans. Funding commitments and outstanding receivables extended by Three Pillars to its customers totaled $6.2 billion and $3.5 billion, respectively, as of September 30, 2008, almost all of which renew annually. Funding commitments and outstanding receivables extended by Three Pillars to its customers totaled $7.7 billion and $4.6 billion, respectively, as of December 31, 2007. The majority of the commitments are backed by trade receivables and commercial loans. Each transaction added to Three Pillars is typically structured to an implied ‘A/A2’ rating according to established credit and underwriting policies as approved by Credit Risk Management and monitored on a regular basis to ensure compliance with each transaction’s terms and conditions. During the quarter ended September 30, 2008, there were no write-downs and no downgrades of Three Pillars’ assets.

Notes to Consolidated Financial Statements (Unaudited) - Continued

At September 30, 2008, Three Pillars’ outstanding CP used to fund the above assets totaled $3.5 billion, with remaining weighted-average lives of 19.9 days and maturities through March 19, 2009. Three Pillars was generally able to fund itself by issuing CP on behalf of commercial clients despite the lack of market liquidity. However, during the month of September, the illiquid markets put a significant strain on the CP market and as a result of this temporary disruption, the Company purchased approximately $275.4 million par amount of Three Pillars overnight CP, none of which was outstanding at September 30, 2008. Separately, the Company held Three Pillars’ outstanding CP with a par amount of $126.5 million and a weighted-average maturity of 30 days at September 30, 2008. The Company held no amounts as of December 31, 2007. Three Pillars had no other form of funding outstanding as of September 30, 2008 and December 31, 2007.

Three Pillars has an outstanding subordinated note to an unrelated third party that absorbs the majority of Three Pillars’ expected losses. The subordinated note holder absorbs the first dollar of loss in the event of nonpayment of any of Three Pillars’ assets. The subordinated note matures in March 2015; however, the note holder may declare the note due and payable upon an event of default, which includes any loss drawn on the note funding account that remains unreimbursed for 90 days. In such an event, only the remaining balance of the first loss note, after the incurred loss, will be due. If the first loss note holder declared its loss note due under such circumstances and a new first loss note or other first loss protection was not obtained, the Company would likely consolidate Three Pillars on a prospective basis. The outstanding and committed amounts of the subordinated note were both $20.0 million at September 30, 2008 and at December 31, 2007. The Company believes the subordinated note is sized in an amount sufficient to absorb the expected loss of Three Pillars based on current commitment levels as well as for forecasted growth in Three Pillars’ assets, and therefore has concluded it was not Three Pillars’ primary beneficiary, and thus the Company is not required to consolidate Three Pillars.

The Company’s involvement with Three Pillars includes the following activities: services related to the Company’s administration of Three Pillars’ activities; client referrals and investment recommendations to Three Pillars; the issuing of letters of credit, which provides partial credit protection to the commercial paper holders; and providing a majority of the liquidity arrangements that would provide funding to Three Pillars in the event it can no longer issue commercial paper or in certain other circumstances. Activities related to the Three Pillars relationship generated total fee revenue for the Company, net of direct salary and administrative costs incurred by the Company, of approximately $13.2 million and $6.9 million for the quarters ended September 30, 2008 and 2007, respectively, and $35.4 million and $21.5 million for the nine months ended September 30, 2008 and 2007, respectively. There are no other contractual arrangements the Company plans to enter into with Three Pillars to provide it additional support.

Off-balance sheet commitments in the form of liquidity facilities and other credit enhancements provided by the Company to Three Pillars, the sum of which represents the Company’s maximum exposure to potential loss, totaled $6.4 billion and $663.2 million, respectively, as of September 30, 2008 compared to $7.9 billion and $763.4 million, respectively, as of December 31, 2007. The liquidity commitments are revolving facilities that are sized based on the current commitments provided by Three Pillars to its customers. The Company manages the credit risk associated with these commitments by subjecting them and the underlying collateral assets of Three Pillars to the Company’s normal credit approval and monitoring processes. Losses on the commitments provided to Three Pillars by the Company resulting from a loss due to nonpayment on the underlying assets are reimbursed to the Company from the subordinated note reserve account, which is the amount outstanding on the subordinated note agreement. There were no losses resulting from the commitments the Company provided to Three Pillars during the three and nine months ended September 30, 2008 and September 30, 2007, respectively.

The Company also provides off-balance sheet commitments in the form of liquidity facilities to multi-seller commercial paper conduits administered by third parties. These facilities were entered into by the Company in conjunction with a structured asset sale of loans from the Company to the conduits. The sum of these commitments, which represents the Company’s maximum exposure to loss under the facilities, totaled $527.1 million and $626.5 million as of September 30, 2008 and December 31, 2007, respectively. Under these facilities, the conduits’ administrator, at its discretion, may obtain funding from the Company in the form of a 49% undivided interest in the pool of loans, excluding any currently defaulted loans, previously transferred to the conduits.

The Company has variable interests in certain other securitization vehicles that are variable interest entities (“VIEs”) that are not consolidated because the Company is not the primary beneficiary. In such cases, the Company does not absorb the majority of the entities’ expected losses nor does it receive a majority of the expected residual returns. At September 30, 2008, total assets of these entities not included on the Company’s Consolidated Balance Sheets were approximately $2.6 billion compared to $3.7 billion at December 31, 2007. At September 30, 2008, the Company’s maximum exposure to loss related to these VIEs was approximately $152.6 million, which represents the Company’s investment in senior interests of $127.6 million and interests in preference shares of $25.0 million, compared to a maximum exposure of $386.9 million as of December 31, 2007, which represented the Company’s investment in senior interests of $358.8 million and interests in preference shares of $28.1 million. The Company serves as collateral manager to certain of these entities and receives market-based senior fees, subordinate fees and, at times, performance fees for services provided, but has no off-balance-sheet or other implicit variable interests related to these entities.

Notes to Consolidated Financial Statements (Unaudited) - Continued

SunTrust provides financing to various VIEs that consist of portfolios of loans managed by a third party. The Company is not the primary beneficiary of these entities. At September 30, 2008, total assets of these entities not included in the Consolidated Balance Sheets were approximately $1.1 billion compared to $38.0 million at December 31, 2007. At September 30, 2008, the Company’s maximum exposure to loss related to these VIEs was approximately $817.8 million compared to a maximum exposure of $7.6 million at December 31, 2007. This exposure is based on the Company’s outstanding loan balance to the entities less any related collateral held by SunTrust in the form of cash or cash equivalents.

As part of its community reinvestment initiatives, the Company invests in multi-family affordable housing developments and other community development entities as a limited and/or general partner throughout its footprint. The Company receives tax credits for these investments. Partnership assets of approximately $920.7 million and $819.5 million where SunTrust acts as only a limited partner were not included in the Consolidated Balance Sheets at September 30, 2008 and December 31, 2007, respectively. The Company’s maximum exposure to loss for these limited partner investments totaled $392.0 million and $333.8 million at September 30, 2008 and December 31, 2007, respectively. The Company’s maximum exposure to loss related to its limited partner investments in affordable housing developments and other community development entities consists of the limited partnership equity investments, unfunded equity commitments, and debt issued by the Company to the limited partnerships.

Ridgeworth Capital Management, Inc., (“RidgeWorth”) formerly known as Trusco Capital Management, Inc., a registered investment advisor and wholly-owned subsidiary of the Company, serves as the investment advisor for various private placement and publicly registered investment funds (collectively the “Funds”). The Company periodically evaluates these Funds to determine if the Funds are voting interest or variable interest entities, as well as monitors the nature of its interests in each Fund to determine if the Company is required to consolidate any of the Funds. While some of the Funds are VIEs, the Company is neither the primary beneficiary, nor does it have a controlling financial interest, and therefore does not consolidate any of the Funds.

In September 2008, SunTrust purchased, at amortized cost plus accrued interest, a Lehman Brothers Holdings, Inc. (“Lehman Brothers”) security from the RidgeWorth Prime Quality Money Market Fund (the “Fund”). The Fund received a cash payment for the accrued interest and a $70 million SunTrust issued note. The Lehman Brothers security went into default when Lehman Brothers filed for bankruptcy in September. SunTrust took this action in response to the unprecedented market events during the third quarter in order to protect investors in the Fund from losses associated with this specific security. When purchased by the Fund, the Lehman Brothers security was rated A-1/P-1 and was a Tier 1 eligible security. Lehman Brothers is currently in liquidation and the ultimate timing and form of repayment on the security is not known at this time. During the third quarter, SunTrust recorded a pre-tax market valuation loss of $63.5 million as a result of the purchase. SunTrust evaluated this transaction under the applicable accounting guidance and concluded we are not the primary beneficiary and therefore consolidation of the Fund was not appropriate.

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

Note 11 – Reinsurance Arrangements and Guarantees

Reinsurance

The Company provides mortgage reinsurance on certain mortgage loans through contracts with several primary mortgage insurance companies. Under these contracts, the Company provides aggregate excess loss coverage in a mezzanine layer in exchange for a portion of the pool’s mortgage insurance premiums. As of September 30, 2008, approximately $18.0 billion of mortgage loans were covered by such mortgage reinsurance contracts. The reinsurance contracts place limits on the Company’s maximum exposure to losses by defining the loss amounts ceded to the Company, as well as by establishing trust accounts for each contract. At September 30, 2008, the total loss exposure ceded to the trusts was approximately $690 million for book years 1997 to 2008; however, the Company’s maximum loss exposure, excluding the reserve discussed below, based on funds held in each trust account was limited to $237.3 million. The trust accounts, which are comprised of funds contributed by the Company plus premiums earned under the reinsurance contracts, are maintained to fund claims made under the reinsurance contracts. If claims exceed funds held in the trust accounts, the Company is not required to make additional contributions beyond future premiums earned under the existing contracts.

Notes to Consolidated Financial Statements (Unaudited) - Continued

The Company maintains a reserve for estimated losses under its reinsurance contracts. The reserve, which is an estimate of losses resulting from claims to be paid by the trusts, totaled $80.0 million as of September 30, 2008 and reduces the Company’s incremental loss exposure based on funds held in the trusts, net of reserves, to approximately $160 million. As of December 31, 2007, the reserve for losses totaled $0.2 million, as no losses had been realized in the trusts at that time. On an ongoing basis, the Company assesses the sufficiency of future revenues, including premiums and investment income on funds held in the trusts, to cover future claims.

Guarantees

The Company has undertaken certain guarantee obligations in the ordinary course of business. In following the provisions of FIN 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” 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, 2008, which have characteristics as specified by FIN 45.

Visa

The Company issues and acquires credit and debit card transactions through the Visa, U.S.A. Inc. card association or its affiliates (collectively “Visa”). On October 3, 2007, Visa completed a restructuring and issued shares of Class B Visa Inc. common stock to its financial institution members, including the Company, in contemplation of an initial public offering (“IPO”). In March 2008, Visa completed its IPO and upon the closing, approximately 2 million of SunTrust’s Class B shares were mandatorily redeemed. The Company received cash of $86.3 million in conjunction with the redemption, which was recorded as a gain in noninterest income. As of September 30, 2008, SunTrust had 3.2 million Class B shares remaining, the equivalent to 2.3 million Class A shares of Visa Inc. based on the current conversion factor, which is subject to adjustment depending on the outcome of certain specifically defined litigation. The Class B shares are not transferable until the later of the third anniversary of the IPO closing, or the date which certain specifically defined litigation has been resolved; therefore, the Class B shares are classified in other assets and accounted for at their carryover basis, which is $0 as of September 30, 2008.

The Company is a defendant, along with Visa U.S.A. Inc. and MasterCard International (the “Card Associations”), as well as several other banks, in one of several antitrust lawsuits challenging the practices of the Card Associations (the “Litigation”). The Company has entered into judgment and loss sharing agreements with Visa and certain other banks in order to apportion financial responsibilities arising from any potential adverse judgment or negotiated settlements related to the Litigation. Additionally, in connection with the restructuring, a provision of the original Visa By-Laws, Section 2.05j, was restated in Visa’s certificate of incorporation. Section 2.05j contains a general indemnification provision between a Visa member and Visa, and explicitly provides that after the closing of the restructuring, each member’s indemnification obligation is limited to losses arising from its own conduct and the specifically defined Litigation. The maximum potential amount of future payments that the Company could be required to make under this indemnification provision cannot be determined as there is no limitation provided under the By-Laws and the amount of exposure is dependent on the outcome of the Litigation. As a result of the indemnification provision in Section 2.05j of the Visa By-Laws and/or the indemnification provided through the judgment or loss sharing agreements, the Company estimated the fair value of the guarantee to be $76.9 million as of December 31, 2007. Upon Visa’s IPO in March 2008, Visa funded $3 billion into an escrow account, established for the purpose of funding judgments in, or settlements of, the Litigation. While the Company could be required to separately fund its proportionate share of the losses, it is expected that the escrow account will be used to pay all or a substantial amount of the Litigation losses. Therefore, during the quarter ended March 31, 2008, SunTrust recorded $39.1 million, its expected economic benefit associated with the escrow account, as an offset to the guarantee liability of $76.9 million and as a reduction to Visa litigation expense, resulting in a net guarantee liability of $37.8 million. In October 2008, Visa reached a settlement with Discover Financial Services related to a case within the covered Litigation. The Company estimates that the settlement incrementally adds $20.0 million to the fair value of its guarantee liability and recorded this incremental amount, bringing the net guarantee liability to $57.8 million as of September 30, 2008. Based upon the settlement amount, it is expected that the escrow account may be insufficient to fund the losses arising from the Litigation. As a result, Visa will have the right to utilize the Company’s remaining Class B shares to raise proceeds to fund the additional Litigation costs. Upon further funding of the escrow utilizing

Notes to Consolidated Financial Statements (Unaudited) - Continued

the Company’s Class B shares, the Company will reevaluate its guarantee obligation, net of its benefit from the additional escrow funding, and adjust the net guarantee liability accordingly through noninterest expense. A high degree of subjectivity was used in estimating the fair value of the guarantee obligation and the ultimate cost to the Company could be significantly higher or lower than the liability recorded as of September 30, 2008.

Letters of Credit

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

As of September 30, 2008 and December 31, 2007, the maximum potential amount of the Company’s obligation was $14.3 billion and $12.6 billion, respectively, for financial and performance standby letters of credit. The Company has recorded $150.4 million and $112.4 million in other liabilities for unearned fees related to these letters of credit as of September 30, 2008 and December 31, 2007, respectively. The Company’s outstanding letters of credit generally have a term of less than one year but may extend longer than one year. If a letter of credit is drawn upon, the Company may seek recourse through the client’s underlying line of credit. If the client’s line of credit is also in default, the Company may take possession of the collateral securing the line of credit, where applicable.

Loan Sales

SunTrust Mortgage, Inc. (“STM”), a consolidated subsidiary of SunTrust, originates and purchases consumer residential mortgage loans, a portion of which are sold to outside investors in the normal course of business. When mortgage loans or MSRs are sold, representations and warranties regarding certain attributes of the loans sold are made to the third party purchaser. These representations and warranties may extend through the life of the mortgage loan, generally 25 to 30 years. Subsequent to the sale, if inadvertent underwriting deficiencies or documentation defects are discovered in individual mortgage loans, STM will be obligated to repurchase the respective mortgage loan or MSRs and absorb the loss if such deficiencies or defects cannot be cured by STM within the specified period following discovery. STM also maintains a liability for estimated losses on mortgage loans and MSRs that may be repurchased due to breach of general representations and warranties or purchasers’ rights under early payment default provisions. As of September 30, 2008 and December 31, 2007, $55.1 million and $49.9 million, respectively, were accrued for these repurchases.

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 $32.9 million and $37.7 million as of September 30, 2008 and December 31, 2007, 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, 2008. If required, these contingent payments will be payable at various times over the next five years.

Public Deposits

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

Notes to Consolidated Financial Statements (Unaudited) - Continued

have to perform under this guarantee is dependent on whether any banks holding public funds default as well as the adequacy of collateral coverage.

Other

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

SunTrust Investment Services, Inc. (“STIS”) and SunTrust Robinson Humphrey, Inc. (“STRH”), broker-dealer affiliates of SunTrust, use a common third party clearing broker to clear and execute their customers’ securities transactions and to hold customer accounts. Under their respective agreements, STIS and STRH agree to indemnify the clearing broker for losses that result from a customer’s failure to fulfill its contractual obligations. As the clearing broker’s rights to charge STIS and STRH have no maximum amount, the Company believes that the maximum potential obligation cannot be estimated. However, to mitigate exposure, the affiliate may seek recourse from the customer through cash or securities held in the defaulting customers’ account. For the three and nine months ended September 30, 2008 and September 30, 2007, STIS and STRH experienced minimal net losses as a result of the indemnity. The clearing agreements expire in May 2010 for both STIS and STRH. See Note 14, “Contingencies,” to the Consolidated Financial Statements for a discussion regarding the offer to purchase of auction rate securities.

As part of its trading businesses, the Company writes contracts that are, in form or substance, written guarantees; these contracts are, in form, credit default swaps, swap participations and total return swaps. The Company accounts for all of these contracts as derivative instruments in accordance with the provisions of SFAS No. 133 and, accordingly, records these contracts at fair value. Credit default swaps are agreements in which the Company receives premium payments from its counterparty for protection against an event of default of a referenced asset. In the event of default under the contract, the Company would generally make a cash payment to its counterparty and take delivery of the referenced asset from which the Company may recover all or a portion of the credit loss. There were no cash payments made during 2007 or during the nine months ended September 30, 2008. The maximum guarantees outstanding at September 30, 2008 and December 31, 2007, as measured by the gross notional amounts of written credit default swaps, were $218.4 million and $313.4 million, respectively. In the normal course of its trading activities, the Company purchases credit default swaps to mitigate a portion of the Company’s exposure on these written contracts; at September 30, 2008 and December 31, 2007, the gross notional amounts of such purchased contracts, which represent benefits to, rather than obligations of, the Company, were $239.1 million and $401.4 million, respectively. The Company also purchases credit default swaps for purposes other than trading, as economic hedges of certain loan positions; at September 30, 2008 and December 31, 2007, the gross notional amounts outstanding of these instruments were $370.0 million and $380.0 million. The Company writes swap participations, which are credit derivatives whereby the Company has guaranteed payment to the counterparty in the event that the counterparty experiences a loss on a derivative instrument, such as an interest rate swap, due to a failure to pay by its counterparty. The Company’s maximum estimated exposure to written swap participations was approximately $151.1 million and $18.3 million at September 30, 2008 and December 31, 2007, respectively. As part of its trading activities, the Company may enter into offsetting purchased swap participations to mitigate some of its risk on its written swap participations. The Company also enters into total return swaps. The Company's total return swaps are matched trades, such that the Company does not have any long or short exposure, other than credit risk of the counterparty, which is managed through collateralization. Based on the terms of the total return swaps, the Company would be required to pay the depreciated value, if any, of the underlying reference asset; in this manner, a total return swap functions similar to a guarantee. However, the terms of a total return swaps also entitle the Company to the appreciated value, if any, of the underlying reference asset, which is different from traditional guarantees. The Company has outstanding $1.1 billion of committed notional under total return swaps and has entered into $1.1 billion in offsetting total return swaps.

SunTrust Community Capital, LLC (“SunTrust Community Capital”), a SunTrust subsidiary, previously obtained state and federal tax credits through the construction and development of affordable housing properties and continues to obtain state and federal tax credits through investments as a limited partner in affordable housing developments. SunTrust Community Capital or its subsidiaries are limited and/or general partners in various partnerships established for the properties. If the partnerships generate tax credits, those credits may be sold to outside investors. As of September 30, 2008, SunTrust Community Capital has completed six tax credit sales containing guarantee provisions stating that SunTrust Community Capital will make payment to the outside investors if the tax credits become ineligible. SunTrust Community Capital also guarantees that the general partner

Notes to Consolidated Financial Statements (Unaudited) - Continued

under the transaction will perform on the delivery of the credits. The guarantees are expected to expire within a ten year period. As of September 30, 2008, the maximum potential amount that SunTrust Community Capital could be obligated to pay under these guarantees is $38.6 million; however, SunTrust Community Capital can seek recourse against the general partner. Additionally, SunTrust Community Capital can seek reimbursement from cash flow and residual values of the underlying affordable housing properties provided that the properties retain value. As of September 30, 2008 and December 31, 2007, $12.2 million and $14.4 million, respectively, were accrued representing the remainder of tax credits to be delivered, and were recorded in other liabilities on the Consolidated Balance Sheets.

Note 12 – Concentrations of Credit Risk

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

Credit risk associated with these concentrations could arise when a significant amount of loans, related by similar characteristics, are simultaneously impacted by changes in economic or other conditions that cause their probability of repayment to be adversely affected. The Company does not have a significant concentration of risk to any individual client except for the U.S. government and its agencies. The major concentrations of credit risk for the Company arise by collateral type in relation to loans and credit commitments. The only significant concentration that exists is in loans secured by residential real estate. At September 30, 2008, the Company owned $48.5 billion in residential real estate loans and home equity lines, representing 38.3% of total loans, and an additional $19.1 billion in commitments to extend credit on home equity lines and $13.4 billion in mortgage loan commitments. At December 31, 2007, the Company owned $47.7 billion in residential real estate loans and home equity lines, representing 39.0% of total loans, and an additional $20.4 billion in commitments to extend credit on home equity lines and $12.9 billion in mortgage loan commitments. The Company originates and retains certain residential mortgage loan products that include features such as interest only loans, high loan to value loans and low initial interest rate loans. As of September 30, 2008, the Company owned $16.8 billion of interest only loans, primarily with a ten year interest only period. Approximately $1.7 billion of those loans had combined original loan to value ratios in excess of 80%. Additionally, the Company owned approximately $2.4 billion of amortizing loans with combined loan to value ratios in excess of 80% with no mortgage insurance. The Company attempts to mitigate and control the risk in each loan type through private mortgage insurance and underwriting guidelines and practices. A geographic concentration arises because the Company operates primarily in the Southeastern and Mid-Atlantic regions of the United States.

SunTrust engages in limited international banking activities. The Company’s total cross-border outstandings were $764.5 million and $591.6 million as of September 30, 2008 and December 31, 2007, respectively.

Note 13 – Fair Value Election and Measurement

In accordance with SFAS No. 159, the Company has elected to record specific financial assets and financial liabilities at fair value. These instruments include all, or a portion, of the following: fixed rate debt, loans held in portfolio and for sale, and trading loans. The following is a description of each financial asset and liability class as of September 30, 2008 for which fair value has been elected, including the specific reasons for electing fair value and the strategies for managing the financial assets and liabilities on a fair value basis.

Fixed Rate Debt

The debt that the Company initially elected to carry at fair value was all of its fixed rate debt that had previously been designated in qualifying fair value hedges using receive fixed/pay floating interest rate swaps, pursuant to the provisions of SFAS No. 133. This population included $3.5 billion of fixed rate Federal Home Loan Bank advances and $3.3 billion of publicly-issued debt. The Company elected to record this debt at fair value in order to align the accounting for the debt with the accounting for the derivative without having to account for the debt under hedge accounting, thus avoiding the complex and time consuming fair value hedge accounting requirements of SFAS No. 133. This move to fair value introduced potential earnings volatility due to changes in the Company’s credit spread that were not required to be valued under the SFAS No. 133 hedge designation. Most of the debt, along with certain of the interest rate swaps previously designated as hedges under SFAS No. 133, continues to remain outstanding.

During the year ended December 31, 2007, the Company consummated two fixed rate debt issuances. On September 10, 2007, the Company issued $500 million of Senior Notes, which carried a fixed coupon rate of 6.00% and had a term of 10 years. The

Notes to Consolidated Financial Statements (Unaudited) - Continued

Company did not enter into any derivatives to hedge this debt and, therefore, did not elect to carry the debt at fair value. On November 5, 2007, the Company issued $500 million of Senior Notes, which carried a fixed coupon rate of 5.25% and had a term of 5 years. The Company entered into interest rate swaps in connection with this debt issuance and, as a result, elected to carry this debt at fair value.

During the nine months ended September 30, 2008, the Company consummated two fixed rate debt issuances and repurchased certain debt carried at fair value. On March 4, 2008, the Company issued $685 million of trust preferred securities, which carried a fixed coupon rate of 7.875% and had a term of 60 years. The Company did not enter into any derivatives to hedge this debt and, therefore, did not elect to carry the debt at fair value. On March 17, 2008, the Company issued $500 million of subordinated notes, which carried a fixed coupon rate of 7.25% and had a term of 10 years. The Company entered into interest rate swaps in connection with this debt issuance and, as a result, elected to carry this debt at fair value. During the nine months ended September 30, 2008, $294.2 million of the Company’s fair value debt matured, and the Company repurchased principal amounts of approximately $384 million of debt carried at fair value to mitigate volatility from credit spread changes.

In September 2008, the Federal Reserve Bank of Boston (the “Fed”) instituted the ABCP MMMF Liquidity Facility program (the “Program”), whereby the Fed will make a fixed rate, non-recourse loan to any eligible depository institution, bank holding company or affiliated broker/dealer who purchases certain asset-backed commercial paper (“ABCP”) from certain money market mutual funds. As of September 30, SunTrust Robinson Humphrey ("STRH") had outstanding loans from the Fed under the Program in the amount of $125.1 million that had a weighted average maturity of 2 days and a fixed interest rate of 2.25%. The loans from the Fed were elected to be carried at fair value pursuant to the provisions of SFAS No. 159 and classified within other short-term borrowings. Because of the non-recourse nature of the loans, SunTrust did not recognize through earnings any differences in fair value between the loans and the ABCP, which was classified as a trading asset. Subsequent to September 30, STRH collected 100% of the par amount of the underlying ABCP and repaid the loans to the Fed.

Brokered Deposits

Prior to adopting SFAS No. 159, the Company had adopted the provisions of SFAS No. 155 and elected to carry certain certificates of deposit at fair value. These debt instruments include embedded derivatives that are generally based on underlying equity securities or equity indices, but may be based on other underlyings that are generally not clearly and closely related to the host debt instrument. The Company elected to carry these instruments at fair value in order to remove the mixed attribute accounting model required by SFAS No. 133. The provisions of that statement require bifurcation of a single instrument into a debt component, which would be carried at amortized cost, and a derivative component, which would be carried at fair value, with such bifurcation being based on the fair value of the derivative component and an allocation of any remaining proceeds to the host debt instrument. Since the adoption of SFAS No. 155, the Company has elected to carry substantially all newly-issued certificates of deposit at fair value. In cases where the embedded derivative would not require bifurcation under SFAS No. 133, the instrument may be carried at fair value under SFAS No. 159 to allow the Company to economically hedge the embedded features.

Loans and Loans Held for Sale

In the second quarter of 2007, the Company began recording at fair value certain newly-originated mortgage loans held for sale based upon defined product criteria. SunTrust chose to fair value these mortgage loans held for sale in order to eliminate the complexities and inherent difficulties of achieving hedge accounting and to better align reported results with the underlying economic changes in value of the loans and related hedge instruments. This election impacts the timing and recognition of origination fees and costs, as well as servicing value. Specifically, origination fees and costs, which had been appropriately deferred under SFAS No. 91 and recognized as part of the gain/loss on sale of the loan, are now recognized in earnings at the time of origination. For the three and nine months ended September 30, 2008, approximately $23.2 million and $92.7 million, respectively, of loan origination fees were recognized in noninterest income, for which the Company elected fair value. For the three and nine months ended September 30, 2008, approximately $23.9 million and $90.1 million, respectively, of loan origination costs were recognized in noninterest expense due to this fair value election. For the three and nine months ended September 30, 2007, approximately $30.4 million and $42.3 million, respectively, in loan origination fees and approximately $32.1 million and $44.5 million, respectively, in loan origination costs were recognized due to this fair value election. The servicing value, which had been recorded as MSRs at the time the loan was sold, is now included in the fair value of the loan and initially recognized at the time the Company enters into IRLCs with borrowers. The Company began using derivatives to economically hedge changes in servicing value as a result of including the servicing value in the fair value of the loan. The estimated impact from recognizing servicing value, net of related hedging costs, as part of the fair value of the loan is captured in mortgage production income.

Notes to Consolidated Financial Statements (Unaudited) - Continued

In the normal course of business, the Company may elect to transfer certain fair valued mortgage loans held for sale to mortgage loans held for investment. During the nine months ended September 30, 2008, $79.9 million of such loans were transferred from mortgage loans held for sale to mortgage loans held for investment due to a change in management’s intent with respect to these loans based on the limited marketability of these loans given the lack of liquidity for certain loan types.

On May 1, 2008, SunTrust acquired 100% of the outstanding common shares of GB&T. As a result of the acquisition, SunTrust acquired approximately $1.4 billion of loans, primarily commercial real estate loans. SunTrust elected to account for at fair value, in accordance with SFAS No. 159, $171.6 million of the acquired loans, which were classified as nonaccrual, in order to eliminate the complexities of accounting for the loans under Statement of Position 03-3, “Accounting for Certain Loans or Debt Securities Acquired in a Transfer.” Upon acquisition, the loans had a fair value of $111.1 million. On September 30, 2008, primarily as a result of paydowns, payoffs and transfers to OREO, the loans had a fair value of $55.7 million.

Trading Loans

The Company often maintains a portfolio of loans that it trades in the secondary market. Pursuant to the provisions of SFAS No. 159, the Company elected to carry trading loans at fair value in order to reflect the active management of these positions. Subsequent to the initial adoption, additional loans were purchased and recorded at fair value as part of the Company’s normal loan trading activities. As of September 30, 2008, approximately $270.1 million of trading loans were outstanding.

In addition to loans carried at fair value in connection with the Company’s loan trading business, the Company has also elected to carry short-term loans made in connection with its total return swap business. At September 30, 2008, the Company had approximately $1.1 billion of such short-term loans carried at fair value, which are included in trading assets.

Valuation Methodologies and Fair Value Hierarchy

The primary financial instruments that the Company carries at fair value include securities, derivative instruments, fixed rate debt, and loans. Classification in the fair value hierarchy of financial instruments is based on the criteria set forth in SFAS No. 157. Financial instruments that have limited observable trading activity (i.e., inactive markets) or where indicative third party prices contain wide bid/ask spreads were classified as level 3 instruments due to the significance of the unobservable inputs, namely credit and liquidity risk, in estimating the fair value. The values provided by third party sources were generally based on proprietary models or non-binding broker price indications that estimated the credit and liquidity risk.

A market is considered inactive based on an evaluation of the frequency and size of transactions occurring in a certain financial instrument or similar class of financial instruments. This required a judgmental evaluation that included comparing the recent trading activities to historical experience. If limited trading activity existed and few market participants were willing to transact, as evidenced by wide bid/ask spreads, non-binding indicative bids, and the nature of the market participants, the market was considered to be inactive. Inactive markets necessitate the use of additional judgment when valuing financial instruments, such as pricing matrices, cash flow modeling, and the selection of an appropriate discount rate. The assumptions used to estimate the value of an instrument where the market was inactive were based on our assessment of the assumptions a market participant would use to value the instrument in an orderly transaction, and included considerations of illiquidity in the current market environment.

Level 3 Instruments

SunTrust used significant unobservable inputs (level 3) to fair value certain financial and non-financial instruments as of September 30, 2008. The need to use unobservable inputs generally results from the lack of market liquidity, which has resulted in diminished observability of both actual trades and assumptions that would otherwise be available to value these instruments. More specifically, the asset-backed securities market, certain residential loan markets, and debt markets have experienced significant dislocation and illiquidity in both new issues and secondary trading. It is reasonably likely that this market volatility will continue as a result of a variety of factors, including but not limited to economic conditions, the restructuring of structured investment vehicles (“SIVs”), and third party sales of securities, some of which could be large-scale.

The Company’s level 3 securities available for sale include certain municipal bond securities and Federal Home Loan Bank and Federal Reserve Bank stock, which are only redeemable with the issuer at par and cannot be traded in the market; as such, no significant observable market data for these instruments is available. The Company’s remaining level 3 available for sale securities, as well as its level 3 trading assets, include residual and other interests retained from Company-sponsored participations or securitizations of commercial loans and mortgage-backed securities, investments in SIVs, auction rate securities, and mortgaged-backed and asset-backed securities collateralized by a variety of underlying assets including

Notes to Consolidated Financial Statements (Unaudited) - Continued

residential mortgages, corporate obligations, and commercial real estate for which little or no market activity exists or whose value of the underlying collateral is not market observable.

The residual interests are valued based on internal models which incorporate assumptions, such as prepayment speeds and estimated credit losses, which are not market observable. Generally, the Company attempts to obtain pricing for its securities from a third party pricing provider or third party brokers who have experience in valuing certain investments, as this level of evidence is the strongest support for the fair value of these instruments, absent current security specific market activity. This pricing may be used as either direct support for the Company’s valuation or used to validate outputs from the Company’s own proprietary models. However, the distressed market conditions have impacted the Company’s ability to obtain third party pricing data for many of its financial instruments. Even when third party pricing has been available, the limited trading activity and illiquidity resulting from current market conditions has challenged the observability of these quotations. When observable market data for these instruments is not available, SunTrust will use industry-standard or proprietary models to estimate fair value and will consider assumptions such as relevant market indices that correlate to the underlying collateral, prepayment speeds, default rates, loss severity rates, and discount rates. Due to the continued illiquidity and credit risk of certain securities, the market value of these securities is highly sensitive to assumption changes and market volatility.

As disclosed in the tabular level 3 rollforwards, during the three and nine months ended September 30, 2008, the Company transferred certain trading assets and available for sale securities into level 3 due to the illiquidity of these securities and lack of market observable information to value these securities. The transfers into level 3 were not the result of using an alternative valuation approach to estimate fair value that otherwise would have impacted earnings. Transfers into level 3 are generally assumed to be as of the beginning of the quarter in which the transfer occurred while transfers out of level 3 are generally assumed to occur as of the end of the quarter in which the transfer occurred.

Level 3 loans are primarily non-agency residential mortgage loans held for investment or loans held for sale for which there is little to no observable trading activity in either the new issuance or secondary loan markets as either whole loans or as securities. Prior to the non-agency residential loan market disruption, which began during the third quarter of 2007 and continues, the Company was able to obtain certain observable pricing from either the new issuance or secondary loan market. However, as the markets deteriorated and certain loans were not actively trading as either whole loans or as securities, the Company began employing alternative valuation methodologies to determine the fair value of the loans. Even if limited market data is available, the characteristics of the underlying loan collateral are critical to arriving at an appropriate fair value in the current markets, such that any similarities that may otherwise be drawn are questionable. The alternative valuation methodologies include obtaining certain levels of broker pricing, when available, and extrapolating this data across the larger loan population. This extrapolation includes recording additional liquidity adjustments, when necessary, and valuation estimates of underlying collateral to accurately reflect the price the Company believes it would receive if the loans were sold.

Additionally, level 3 loans include some of the loans acquired through the acquisition of GB&T. The loans the Company elected to account for at fair value are primarily nonperforming commercial real estate loans, which do not trade in an active secondary market. As these loans are classified as nonperforming, cash proceeds from the sale of the underlying collateral is the expected source of repayment for a majority of these loans. Accordingly, the fair value of these loans is derived from internal estimates, incorporating market data when available, of the value of the underlying collateral.

As disclosed in the tabular level 3 rollforwards, during the three and nine months ended September 30, 2008, the Company transferred certain mortgage loans held for sale into level 3 based on secondary market illiquidity and the resulting reduction of observable market data for certain non-agency loans requiring increased reliance on unobservable inputs. The transfers into level 3 were not the result of using an alternative valuation approach to estimate fair value that otherwise would have impacted earnings.

The Company has elected to carry at fair value $3.6 billion (par) of publicly-issued, fixed rate debt. This debt is valued by obtaining quotes from a third party pricing service and utilizing broker quotes to corroborate the reasonableness of those marks. In addition, information from market data of recent observable trades as well as indications from buy side investors, if available, are taken into consideration as additional support for the mark. During the third quarter of 2008, there were few trades to reference, and therefore, given the continued lack of liquidity for these types of instruments, both in the secondary markets and for primary issuances, this debt was transferred from a level 2 to a level 3 classification in the fair value hierarchy. The transfer into level 3 was not the result of using an alternative valuation approach to estimate fair value that otherwise would have impacted earnings.

Notes to Consolidated Financial Statements (Unaudited) - Continued

Beginning in the first quarter of 2008, the Company classified IRLCs on residential mortgage loans held for sale, which are derivatives under SFAS No. 133, on a gross basis within other liabilities or other assets. The fair value of these commitments, while based on interest rates observable in the market, is highly dependent on the ultimate closing of the loans. These “pull-through” rates are based on the Company’s historical data and reflect the Company’s best estimate of the likelihood that a commitment will ultimately result in a closed loan. As a result of the adoption of SAB No. 109, beginning in the first quarter of 2008, servicing value was also included in the fair value of IRLCs. The fair value of MSRs is determined by projecting cash flows which are then discounted to estimate an expected fair value. The fair value of MSRs is impacted by a variety of factors, including prepayment assumptions, discount rates, delinquency rates, contractually specified servicing fees and underlying portfolio characteristics. Because these inputs are not transparent in market trades, MSRs are considered to be level 3 assets in the valuation hierarchy. As of September 30, 2008 and 2007, no MSR valuation allowance was recognized as a result of impairment.

Derivative instruments are primarily transacted in the institutional dealer market and priced with observable market assumptions at a mid-market valuation point, with appropriate valuation adjustments for liquidity and credit risk. For purposes of valuation adjustments to its derivative positions under SFAS No. 157, the Company has evaluated liquidity premiums that may be demanded by market participants, as well as the credit risk of its counterparties and its own credit. The Company has considered factors such as the likelihood of default by itself and its counterparties, its net exposures, and remaining maturities in determining the appropriate fair value adjustments to record. Generally, the expected loss of each counterparty is estimated using the Company’s proprietary internal risk rating system. The risk rating systems utilize counterparty specific probabilities of default and loss given default estimates to derive the expected loss. For counterparties that are rated by national rating agencies, those ratings are also considered in estimating the credit risk. In addition, counterparty exposure is evaluated by netting positions that are subject to master netting arrangements, as well as considering the amount of marketable collateral securing the position. Specifically approved counterparties and exposure limits are defined. The approved counterparties are regularly reviewed, and appropriate business action is taken to adjust the exposure to certain counterparties, as necessary. This approach used to estimate impacted exposures to counterparties is also used by the Company to estimate its own credit risk on derivative liability positions. To date, no material losses due to a counterparty’s inability to pay any net uncollateralized position has been incurred. The change in value of derivative assets and derivative liabilities that is attributed to credit risk was not significant in 2007 and 2008.

Most derivative instruments are level 1 or level 2 instruments, except for the IRLCs discussed herein. In addition, the equity forward agreements (the “Agreements”) the Company entered into related to its Coke stock are level 3 instruments within the fair value hierarchy of SFAS No. 157, due to the unobservability of a significant assumption used to value these instruments. Because the value is primarily driven by the embedded equity collars on the Coke shares, a Black-Scholes model is the appropriate valuation model. Most of the assumptions are directly observable from the market, such as the per share market price of Coke, interest rates and the dividend rate on Coke. Volatility is a significant assumption and is impacted both by the unusually large size of the trade and the long tenor until settlement. Because the derivatives carry initial terms of approximately six and a half and seven years and are on a significant number of Coke shares, the observable and active options market on Coke does not provide for any identical or similar instruments. As such, the Company receives estimated market values from a market participant who is knowledgeable about Coke equity derivatives and is active in the market. Based on inquiries of the market participant as to their procedures, the Company has satisfied itself that the market participant is using methodologies and assumptions that other market participants would use in arriving at the fair value of the Agreements. At September 30, 2008, the Agreements’ fair value represented a liability position for the Company of approximately $1.6 million.

Level 3 other assets include non-financial assets that are measured on a non-recurring basis based on the estimated expected remaining cash flows to be received from these assets discounted at a market rate that is commensurate with their risk profile.

Credit Risk

The credit risk associated with the underlying cash flows of an instrument carried at fair value was a consideration in estimating the fair value of certain financial instruments. Credit risk was considered in the valuation through a variety of inputs, as applicable, including, the actual default and loss severity of the collateral, the instrument’s spread in relation to U.S. Treasury rates, the capital structure of the security and level of subordination, or the rating on a security/obligor as defined by nationally recognized rating agencies. The assumptions used to estimate credit risk applied relevant information that a market participant would likely use in valuing an instrument.

Notes to Consolidated Financial Statements (Unaudited) - Continued

For loan products that the Company has elected to carry at fair value, the Company has considered the component of the fair value changes due to instrument-specific credit risk, which is intended to be an approximation of the fair value change attributable to changes in borrower-specific credit risk. For the three and nine months ended September 30, 2008, SunTrust recognized a loss on loans accounted for at fair value of approximately $7.0 million and $23.8 million, respectively, due to changes in fair value attributable to borrower-specific credit risk. Due to the fact that an insignificant percentage of the loans carried at fair value during the nine months ended September 30, 2007 were on nonaccrual status, were past due or had other characteristics generating borrower-specific credit risk, the Company did not ascribe any significant fair value changes to borrower-specific credit risk during that period. In addition to borrower-specific credit risk, there are other, more significant variables that will drive changes in the fair value of the loans, including interest rates changes and general conditions in the principal markets for the loans.

For the publicly-traded fixed rate debt carried at fair value, the Company estimated credit spreads above U.S. Treasury rates, based on credit spreads from actual or estimated trading levels of the debt. Prior to the second quarter of 2008, the Company had estimated the impacts of its own credit spreads over LIBOR; however, given the recent volatility in the interest rate markets, the Company analyzed the difference between using U.S. Treasury rates and LIBOR. While the historical analysis indicated only minor differences, the Company believes that beginning in the second quarter of 2008 a more accurate depiction of the impacts of changes in its own credit spreads is to base such estimation on the U.S. Treasury rate, which reflects a risk-free interest rate. Further supporting this decision, LIBOR has recently exhibited extreme volatility and remained at elevated levels due to the global credit crisis. A reason the Company had selected LIBOR in the past was due to the presence of LIBOR-based interest rate swap contracts that the Company had historically used to hedge its interest rate exposure on these debt instruments under SFAS No. 133. The Company may, however, also purchase fixed rate trading securities in an effort to hedge its fair value exposure to its fixed rate debt. The Company may also continue to use interest rate swap contracts to hedge interest exposure on future fixed rate debt issuances pursuant to the provisions of SFAS No. 133. Based on U.S. Treasury rates, the Company recognized a gain of approximately $327.3 million and approximately $459.7 million, for the three and nine months ended September 30, 2008, respectively, and a gain of approximately $58.4 million and $73.2 million, respectively, for the three and nine months ended September 30, 2007, due to changes in its own credit spread on its public debt as well as its brokered deposits.

The following tables present financial assets and financial liabilities measured at fair value on a recurring basis and the change in fair value for those specific financial instruments in which fair value has been elected. The tables do not reflect the change in fair value attributable to the related economic hedges the Company used to mitigate the interest rate risk associated with the financial instruments. The changes in the fair value of economic hedges were also recorded in trading account profits and commissions or mortgage production related income, as appropriate, and are designed to partially offset the change in fair value of the financial instruments referenced in the tables below. The Company’s economic hedging activities are deployed at both the instrument and portfolio level.

Notes to Consolidated Financial Statements (Unaudited) - Continued


		Fair Value Measurements at September 30, 2008, Using
(Dollars in thousands)	Assets/Liabilities Measured at Fair Value September 30, 2008	Quoted Prices In Active Markets for Identical Assets/Liabilities (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)

Assets
Trading assets	$8,936,540	$310,176	$8,160,695	$465,669
Securities available for sale	14,533,075	1,714,655	11,316,708	1,501,712
Loans held for sale	3,368,548	-	2,726,907	641,641
Loans	302,280	-	-	302,280
Other assets ¹	91,831	2,272	64,622	24,937

Liabilities
Brokered deposits	420,822	-	420,822	-
Trading liabilities	1,924,013	452,515	1,469,918	1,580
Other short-term borrowings	125,108	-	125,108	-
Long-term debt	6,633,658	-	3,494,087	3,139,571
Other liabilities ¹	52,785	-	49,394	3,391

(Dollars in thousands)

Fair Value Gain/(Loss) for the Three Months Ended
September 30, 2008, for Items Measured at Fair Value Pursuant
to Election of the Fair Value Option

Fair Value Gain/(Loss) for the Nine Months Ended
September 30, 2008, for Items Measured at Fair Value Pursuant
to Election of the Fair Value Option

Assets

Trading Account
Profits and
Commissions

Mortgage
Production
Related
Income

Total
Changes in
Fair Values
Included in
Current-
Period
Earnings¹

Trading Account
Profits and
Commissions

Mortgage
Production
Related Income

Total
Changes in
Fair Values
Included in
Current-
Period
Earnings¹

Trading assets

($954)

($120)

Loans held for sale

97,553 ²

97,553

215,538 ²

215,538

Loans

(8,121)

(21,825)

Liabilities

Brokered deposits

31,640

43,882

Other short-term borrowings

Long-term debt

292,950

456,704

¹ Changes in fair value for the three and nine months ended September 30, 2008 exclude accrued interest for the period then ended. Interest income or interest expense on trading assets, loans, loans held for sale, brokered deposits and long-term debt that have been elected to be carried at fair value under the provisions of SFAS No. 159 or SFAS No. 155 are recorded in interest income or interest expense in the Consolidated Statements of Income based on their contractual coupons. Certain trading assets do not have a contractually stated coupon and, for these securities, the Company records interest income based on the effective yield calculated upon acquisition of those securities. For the three and nine months ended September 30, 2008, the changes in fair value related to accrued interest income on loans and loans held for sale were a decrease of $20.1 thousand and an increase of $0.5 million and an increase of $0.3 million and $5.2 million, respectively. For the three and nine months ended September 30, 2008, the changes in fair value related to accrued interest expense on brokered deposits and long-term debt were an increase of approximately $4.6 million and $11.7 million, and an increase of $15.5 million and $18.4 million, respectively.

² For the three and nine months ended September 30, 2008, these amounts include $86.7 million and $330.7 million, respectively, related to MSR assets recognized upon the sale of the loans.

Notes to Consolidated Financial Statements (Unaudited) - Continued


		Fair Value Measurements at December 31, 2007, Using
(Dollars in thousands)	Assets/Liabilities Measured at Fair Value December 31, 2007	Quoted Prices In Active Markets for Identical Assets/Liabilities (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)

Assets
Trading assets	$10,518,379	$294,412	$7,273,822	$2,950,145
Securities available for sale	16,264,107	2,815,488	12,578,912	869,707
Loans held for sale	6,325,160	-	5,843,833	481,327
Loans	220,784	-	-	220,784
Other assets¹	69,405	2,781	66,624	-

Liabilities
Brokered deposits	234,345	-	234,345	-
Trading liabilities	2,160,385	592,678	1,567,707	-
Long-term debt	7,446,980	-	7,446,980	-
Other liabilities¹	56,189	73	36,513	19,603

¹ This amount includes interest rate lock commitments and derivative financial instruments entered into by the Mortgage line of business to hedge its interest rate risk. Beginning in 2008, interest rate lock commitments were recorded gross, instead of net, in other assets or other liabilities. Had SunTrust recorded interest rate lock commitments gross as of year end, the Company would have recorded an asset of $6.8 million and a liability of $26.4 million.


	Fair Value Gain/(Loss) for the Three Months Ended September 30, 2007, for Items Measured at Fair Value Pursuant to Election of the Fair Value Option						Fair Value Gain/(Loss) for the Nine Months Ended September 30, 2007, for Items Measured at Fair Value Pursuant to Election of the Fair Value Option
(Dollars in thousands)	Trading Account Profits and Commissions		Mortgage Production Related Income		Total Changes in Fair Values Included in Current- Period Earnings¹		Trading Account Profits and Commissions		Mortgage Production Related Income		Total Changes in Fair Values Included in Current- Period Earnings¹

Assets
Trading assets	($57,009	)	$-		($57,009	)	($8,020	)	$-		($8,020	)
Loans held for sale	-		(33,577	)	(33,577	)	-		(96,613	)	(96,613	)

Liabilities
Brokered deposits	852		-		852		6,999		-		6,999
Long-term debt	(102,796	)	-		(102,796	)	17,745		-		17,745

¹ Changes in fair value for the three and nine months ended September 30, 2007 exclude accrued interest for the period then ended. Interest income or interest expense on trading assets, loans held for sale, brokered deposits and long-term debt that have been elected to be carried at fair value under the provisions of SFAS No. 159 or SFAS No. 155 are recorded in interest income or interest expense in the Consolidated Statements of Income based on their contractual coupons. Certain trading assets do not have a contractually stated coupon and, for these securities, the Company records interest income based on the effective yield calculated upon acquisition of those securities. For the three and nine months ended September 30, 2007, the change in fair value related to accrued interest income on loans held for sale was an increase of $3.1 million and $13.0 million, respectively, and the change in fair value related to accrued interest expense on brokered deposits and long-term debt was an increase of $2.4 million and $6.3 million and an increase of $26.2 million and $25.9 million, respectively.

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

Notes to Consolidated Financial Statements (Unaudited) - Continued


		September 30, 2008, Using
(Dollars in thousands)	Carrying Value as of September 30, 2008	Quoted Prices In Active Markets for Identical Assets/Liabilities (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	Valuation Allowance as of September 30, 2008
Loans Held for Sale ¹	$730,869	-	$581,318	$149,551	($25,249	)
OREO²	387,037	-	387,037	-	(42,999	)
Other Assets³	38,019	-	-	38,019	-
Other Intangible Assets⁴	17,963	-	-	17,963	-

¹These balances were not impacted by the election of the fair value option and are measured at the lower of cost or market in accordance with SFAS No. 65 and SOP 01-6.

² These balances were not impacted by the election of the fair value option and are measured at fair value on a non-recurring basis in accordance with SFAS No. 144.

³ These balances were not impacted by the election of the fair value option and are measured at fair value on a non-recurring basis in accordance with APB No. 18 and were impacted by a $22.1 million impairment charge recorded during the nine months ended September 30, 2008.

⁴ These balances were not impacted by the election of the fair value option and are measured at fair value on a non-recurring basis in accordance with SFAS No. 142 and SFAS No. 144 and were impacted by a $45.0 million impairment charge recorded during the second quarter of 2008.

As of September 30, 2008 and December 31, 2007, $71.4 million and $105.7 million, respectively, of leases held for sale were included in loans held for sale in the Consolidated Balance Sheets and were not eligible for fair value election under SFAS No. 159.

The following tables show a reconciliation of the beginning and ending balances for fair valued assets measured on a recurring basis using significant unobservable inputs:

Notes to Consolidated Financial Statements (Unaudited) - Continued


	Fair Value Measurements Using Significant Unobservable Inputs

(Dollars in thousands)	Trading Assets		Securities Available for Sale		Loans Held for Sale		Loans		Long-term Debt		Trading Liabilities
Beginning balance July 1, 2008	$880,152		$986,593		$476,003		$352,344		$-		$-
Total gains/(losses) (realized/unrealized):
Included in earnings	(104,730	) ¹	(13,938	) ²	(2,934	) ³	(12,530	) ⁴	304,090	¹	-
Included in other comprehensive income	-		(37,136	)	-		-		-		(1,580	)
Purchase accounting adjustments	-		-		-		6,178		-		-
Purchases and issuances	93,919		137,765		-		127		-		-
Settlements	(50,682	)	(20,435	)	-		-		-		-
Sales	(305,649	)	-		(30,311	)	-		-		-
Repurchase of debt	-		-		-		-		151,966		-
Paydowns and maturities	(59,639	)	(27,688	)	(35,354	)	(14,711	)	-		-
Loan foreclosures transferred to other real estate owned	-		-		(2,582	)	(29,128	)	-		-
Level 3 transfers, net	12,298		476,551		236,819		-		(3,595,627	)	-

Ending balance September 30, 2008	$465,669		$1,501,712		$641,641		$302,280		($3,139,571	)	($1,580	)

The amount of total gains/(losses) for the three months ended September 30, 2008 included in earnings attributable to the change in unrealized gains or losses relating to instruments still held at September 30, 2008	($105,959	) ¹	($13,938	) ²	($7,576	) ³	($12,530	) ⁴	$303,997	¹	$-


Beginning balance January 1, 2008	$2,950,145		$869,707		$481,327		$220,784		$-		$-
Total gains/(losses) (realized/unrealized):
Included in earnings	(353,587	) ¹	(78,712	) ²	(20,297	) ³	(26,549	) ⁴	304,090	¹	-
Included in other comprehensive income	-		(6,278	)	-		-		-		(1,580	)
Purchase accounting adjustments	-		-		-		6,178		-		-
Purchases and issuances	137,869		154,979		-		112,153		-		-
Settlements	(50,682	)	(61,280	)	-		-		-		-
Sales	(1,465,686	)	(116,555	)	(34,049	)	-		-		-
Repurchase of debt	-		-		-		-		151,966		-
Paydowns and maturities	(791,483	)	(134,246	)	(104,518	)	(38,560	)	-		-
Transfers from loans held for sale to loans	-		-		(79,906	)	79,906		-		-
Loan foreclosures transferred to other real estate owned	-		-		(2,582	)	(51,632	)	-		-
Level 3 transfers, net	39,093		874,097		401,666		-		(3,595,627	)	-

Ending balance September 30, 2008	$465,669		$1,501,712		$641,641		$302,280		($3,139,571	)	($1,580	)


The amount of total gains/(losses) for the nine months ended September 30, 2008 included in earnings attributable to the change in unrealized gains or losses relating to instruments still held at September 30, 2008	($174,382	) ¹	($43,720	) ²	($19,529	) ³	($26,549	) ⁴	$303,997	¹	$-

¹ Amounts included in earnings are recorded in trading account profits and commissions.

² Amounts included in earnings are recorded in net securities gains/(losses).

³ Amounts included in earnings are recorded in mortgage production related income.

⁴ Amounts are generally included in mortgage production income except $3.2 million in the third quarter of 2008, related to loans acquired in the GB&T acquisition. The mark on the loans is included in trading account profits and commissions.

Notes to Consolidated Financial Statements (Unaudited) - Continued


	Fair Value Measurements Using Significant Unobservable Inputs

(Dollars in thousands)	Trading Assets		Securities Available for Sale
Beginning balance July 1, 2007	$77,023		$708,042
Total gains or losses (realized/unrealized):
Included in earnings ¹	(131	) ²	-
Included in other comprehensive income	-		(110	)
Purchases and issuances	-		90,098
Settlements	(4,851	)	-
Transfers into Level 3	5,171		105,809

Ending balance September 30, 2007	$77,212		$903,839

Total gains or losses (realized/unrealized):
Beginning balance January 1, 2007	$24,393		$734,633
Total gains/(losses) (realized/unrealized):
Included in earnings ¹	(4,537	) ²	-
Included in other comprehensive income	-		387
Purchases and issuances	61,853		90,605
Settlements	(9,668	)	(27,595	)
Transfers into Level 3	5,171		105,809

Ending balance September 30, 2007	$77,212		$903,839

¹ The amount of total gains/(losses) for the period included in earnings attributable to the change in unrealized gains or losses relating to assets still held at period end.

² Amounts included in earnings are recorded in trading account profits and commissions.

The following tables show a reconciliation of the beginning and ending balances for fair valued other assets/(liabilities), which are IRLCs on residential mortgage loans held for sale, measured using significant unobservable inputs:


(Dollars in thousands)	Other Assets/ (Liabilities), net
Beginning balance July 1, 2008	$8,971
Included in earnings: ¹
Issuances (inception value)	101,872
Fair value changes	11,746
Expirations	(33,651	)
Settlements of IRLCs and transfers into closed loans	(67,392	)

Ending balance September 30, 2008 ²	$21,546


Beginning balance January 1, 2008	($19,603	)
Included in earnings: ¹
Issuances (inception value)	343,467
Fair value changes	(74,944	)
Expirations	(90,418	)
Settlements of IRLCs and transfers into closed loans	(136,956	)

Ending balance September 30, 2008 ²	$21,546

¹ Amounts included in earnings are recorded in mortgage production related income.

² The amount of total gains/(losses) for the period included in earnings attributable to the change in unrealized gains or losses relating to IRLCs still held at period end.

Notes to Consolidated Financial Statements (Unaudited) - Continued


(Dollars in thousands)	Other Assets/ (Liabilities), net
Beginning balance July 1, 2007	($17,508	)
Included in earnings: ¹
Issuances (inception value)	(9,078	)
Fair value changes	13,624
Expirations	(1,300	)
Settlements of IRLCs and transfers into closed loans	10,494

Ending balance September 31, 2007 ²	($3,768	)


Beginning balance January 1, 2007	($29,633	)
Included in earnings: ¹
Issuances (inception value)	(164,314	)
Fair value changes	(121,392	)
Expirations	99,945
Settlements of IRLCs and transfers into closed loans	211,626

Ending balance September 31, 2007 ²	($3,768	)

¹ Amounts included in earnings are recorded in mortgage production related income.

² The amount of total gains/(losses) for the period included in earnings attributable to the change in unrealized gains or losses relating to IRLCs still held at period end.

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


(Dollars in thousands)	Aggregate Fair Value September 30, 2008	Aggregate Unpaid Principal Balance under FVO September 30, 2008	Fair value carrying amount over/(under) unpaid principal

Trading assets	$1,333,117	$1,332,450	$667
Loans	233,852	263,949	(30,097	)
Past due loans of 90 days or more	2,693	3,482	(789	)
Nonaccrual loans	65,735	103,793	(38,058	)
Loans held for sale	3,345,254	3,345,441	(187	)
Past due loans of 90 days or more	4,041	4,616	(575	)
Nonaccrual loans	19,253	26,199	(6,946	)
Brokered deposits	420,822	461,152	(40,330	)
Long-term debt	6,633,658	6,963,085	(329,427	)

(Dollars in thousands)	Aggregate Fair Value December 31, 2007	Aggregate Unpaid Principal Balance under FVO December 31, 2007	Fair value carrying amount over/(under) unpaid principal

Trading assets	$444,774	$442,624	$2,150
Loans	220,784	229,473	(8,689	)
Loans held for sale	6,314,106	6,248,541	65,565
Past due loans of 90 days or more	5,213	6,140	(927	)
Nonaccrual loans	5,841	7,316	(1,475	)
Brokered deposits	234,345	237,205	(2,860	)
Long-term debt	7,446,980	7,316,750	130,230

Notes to Consolidated Financial Statements (Unaudited) - Continued

Note 14 – Contingencies

In September 2008, STRH and STIS entered into an "agreement in principle" with the Financial Industry Regulatory Authority ("FINRA") related to the sales and brokering of auction rate securities ("ARS") by STRH and STIS. This agreement is non-binding and is subject to the negotiation of a final settlement, with such negotiations continuing into the fourth quarter of 2008. This agreement calls for the Company to offer to purchase ARS at par from certain investors. Additionally, the Company has elected to purchase ARS from certain other investors not included in the FINRA settlement. The total par amount of ARS the Company expects to purchase is approximately $725 million. The Company has determined that it has a probable loss pursuant to the provisions of SFAS No. 5 that could be reasonably estimated at September 30, 2008 as the difference between the par amount and the estimated fair value of ARS that the Company believes it will likely purchase from investors. The total loss recognized as of September 30, 2008 was approximately $173 million, which is comprised of losses on probable future purchases, losses on a de minimis amount of ARS purchased from investors prior to September 30, 2008 and estimated fines levied against STRH and STIS by various federal and state agencies. This loss is classified in trading account profits/(losses) and commissions on the Consolidated Statement of Income. If the final agreement with FINRA and the eventual purchases of ARS are required to involve STRH and STIS, the Company will concurrently purchase from STRH and STIS at par the ARS that were purchased from the investors. Due to the pass-through nature of these security purchases, the economic loss has been included in the Corporate Other and Treasury segment.

Note 15 – Business Segment Reporting

The Company has four business segments used to measure business activities: Retail and Commercial Banking, Wholesale Banking, Wealth and Investment Management, and Mortgage with the remainder in Corporate Other and Treasury. The Company previously had five business segments (Retail, Commercial, Corporate and Investment Banking, Wealth and Investment Management and Mortgage) with the remainder in Corporate Other and Treasury. Beginning in 2008, the segment reporting structure was adjusted in the following ways:

The Retail and Commercial segments were combined. In the second quarter of 2008, BankCard, which handles credit card issuance and merchant discount relationships, was transferred from Corporate Other to Retail and Commercial.

Corporate and Investment Banking was renamed Wholesale Banking.

Commercial Real Estate (primarily Real Estate Finance Group and Affordable Housing) was transferred from Commercial to Wholesale Banking.

Trustee Management was transferred from Commercial to Corporate Other and Treasury.

TransPlatinum, which handles Fleet One fuel cards, was transferred from Commercial to Corporate Other and Treasury. In September 2008, TransPlatinum was sold to Fleet One Holdings LLC.

Certain Middle Market clients and relationship managers were transferred from Commercial to Wholesale Banking. Because this transfer included the movement of individual clients and relationship managers, balance, income, and expense from prior periods remained in the Retail and Commercial Banking segment.

Retail and Commercial Banking serves consumers, businesses with up to $100 million in annual revenue, government/not-for-profit enterprises, and provides services for the clients of the Company’s other businesses. Clients are serviced through an extensive network of traditional and in-store branches, ATMs, the Internet and the telephone.

Wholesale Banking’s primary businesses include Middle Market which serves commercial clients with $100 million to $750 million in annual revenue, Corporate Banking which serves clients with greater than $750 million in annual revenue, Commercial Real Estate which serves commercial and residential developers and investors, and SunTrust Robinson Humphrey which offers capital market products and services to its clients.

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

Notes to Consolidated Financial Statements (Unaudited) - Continued

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 businesses include Private Wealth Management (“PWM”) (brokerage and individual wealth management), GenSpring Family Offices LLC, and Institutional Investment Management.

In addition, the Company reports Corporate Other and Treasury, which includes the investment securities portfolio, long-term debt, end user derivative instruments, short-term liquidity and funding activities, balance sheet risk management, and most real estate assets. Other components include Enterprise Information Services, which is the primary data processing and operations group; the Corporate Real Estate group, Marketing, SunTrust Online, Human Resources, Finance, Corporate Risk Management, Legal and Compliance, Branch Operations, Corporate Strategies, Procurement, and Executive Management. Finally, Corporate Other and Treasury also includes Trustee Management, which provides treasury management and deposit services to bankruptcy trustees.

Because the business segment results are presented based on management accounting practices, the transition to the consolidated results, which are prepared under U.S. GAAP, creates certain differences which are reflected in Reconciling Items.

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

•

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

•

Provision for loan losses – Represents net charge-offs by segment. The difference between the segment net charge-offs and the consolidated provision for loan losses is reported in Reconciling Items.

•

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

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

•

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

•

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

•

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

The application and development of management reporting methodologies is a dynamic process and is subject to periodic enhancements. The implementation of these enhancements to the internal management reporting methodology may materially affect the net income disclosed for each segment with no impact on consolidated results. 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 changes in the current period and will update historical results.

Notes to Consolidated Financial Statements (Unaudited) - Continued

Three Months Ended September 30, 2008

(Dollars in thousands)

Retail and
Commercial

Wholesale
Banking

Mortgage

Wealth and
Investment
Management

Corporate Other
and Treasury

Reconciling
Items

Consolidated

Average total assets

$59,143,001

$45,825,637

$41,147,389

$9,015,972

$18,971,024

($214,533

)

$173,888,490

Average total liabilities

83,224,058

17,450,822

2,804,268

10,040,542

42,502,824

(115,940

)

155,906,574

Average total equity

17,981,916

Net interest income

$646,658

$113,816

$107,005

$83,752

$50,163

$144,819

$1,146,213

Fully taxable-equivalent adjustment (FTE)

8,313

16,815

4,331

29,466

Net interest income (FTE)¹

654,971

130,631

107,005

83,759

54,494

144,819

1,175,679

Provision for loan losses²

225,614

32,313

124,861

9,160

124

111,600

503,672

Net interest income after provision for loan losses

429,357

98,318

(17,856

)

74,599

54,370

33,219

672,007

Noninterest income

352,054

158,237

128,441

161,773

486,883

(2,166

)

1,285,222

Noninterest expense

683,972

203,215

365,641

228,934

188,494

(2,170

)

1,668,086

Net income before taxes

97,439

53,340

(255,056

)

7,438

352,759

33,223

289,143

Provision for income taxes³

32,749

11,279

(98,911

)

3,004

51,090

(22,512

)

(23,301

)

Net income

$64,690

$42,061

($156,145

)

$4,434

$301,669

$55,735

$312,444


	Three Months Ended September 30, 2007
(Dollars in thousands)	Retail and Commercial	Wholesale Banking		Mortgage		Wealth and Investment Management	Corporate Other and Treasury		Reconciling Items		Consolidated
Average total assets	$59,248,838	$38,610,922		$45,260,639		$8,771,019	$21,296,051		$1,465,908		$174,653,377
Average total liabilities	83,384,433	11,930,700		2,808,670		10,278,022	48,639,268		62,102		157,103,195
Average total equity	-	-		-		-	-		17,550,182		17,550,182

Net interest income	$697,341	$128,336		$130,476		$86,870	($43,697	)	$192,862		$1,192,188
Fully taxable-equivalent adjustment (FTE)	9,265	13,087		-		13	4,690		-		27,055

Net interest income (FTE)¹	706,606	141,423		130,476		86,883	(39,007	)	192,862		1,219,243
Provision for loan losses²	74,561	15,470		11,733		1,914	12		43,330		147,020

Net interest income after provision for loan losses	632,045	125,953		118,743		84,969	(39,019	)	149,532		1,072,223

Noninterest income	321,904	72,438		89,948		258,432	79,671		(3,254	)	819,139
Noninterest expense	636,885	178,988		235,897		246,440	(3,726	)	(3,239	)	1,291,245

Total contribution before taxes	317,064	19,403		(27,206	)	96,961	44,378		149,517		600,117
Provision for income taxes³	114,309	(12,913	)	(14,697	)	35,773	(1,804	)	59,285		179,953

Net income	$202,755	$32,316		($12,509	)	$61,188	$46,182		$90,232		$420,164

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

²	Provision for loan losses represents net charge-offs for the segments.

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

Notes to Consolidated Financial Statements (Unaudited) - Continued

Nine Months Ended September 30, 2008

(Dollars in thousands)

Retail and
Commercial

Wholesale
Banking

Mortgage

Wealth and
Investment
Management

Corporate Other
and Treasury

Reconciling
Items

Consolidated

Average total assets

$58,840,745

$44,725,704

$42,443,317

$8,956,367

$20,262,961

$216,589

$175,445,683

Average total liabilities

84,455,821

17,051,328

2,765,076

10,214,086

43,012,267

(98,281

)

157,400,297

Average total equity

18,045,386

Net interest income

$1,916,552

$360,037

$361,279

$248,642

$91,848

$464,438

$3,442,796

Fully taxable-equivalent adjustment (FTE)

25,546

46,165

13,961

)

85,697

Net interest income (FTE)¹

1,942,098

406,202

361,279

248,668

105,809

464,437

3,528,493

Provision for loan losses²

588,963

55,570

351,124

16,822

(549

)

499,791

1,511,721

Net interest income after provision for loan losses

1,353,135

350,632

10,155

231,846

106,358

(35,354

)

2,016,772

Noninterest income

1,021,041

516,506

369,216

762,222

1,098,038

(11,289

)

3,755,734

Noninterest expense

1,939,266

604,421

839,902

753,962

175,484

(11,272

)

4,301,763

Net income before taxes

434,910

262,717

(460,531

)

240,106

1,028,912

(35,371

)

1,470,743

Provision for income taxes³

151,883

56,235

(183,721

)

86,774

252,017

(35,806

)

327,382

Net income

$283,027

$206,482

($276,810

)

$153,332

$776,895

$435

$1,143,361


	Nine Months Ended September 30, 2007
(Dollars in thousands)	Retail and Commercial	Wholesale Banking	Mortgage	Wealth and Investment Management	Corporate Other and Treasury		Reconciling Items		Consolidated
Average total assets	$59,015,000	$38,392,096	$45,801,700	$8,923,453	$24,895,553		$1,665,828		$178,693,630
Average total liabilities	84,574,927	11,607,340	2,768,665	10,383,328	51,594,702		32,403		160,961,365
Average total equity	-	-	-	-	-		17,732,264		17,732,264

Net interest income	$2,115,454	$398,243	$394,451	$265,723	($136,466	)	$514,626		$3,552,031
Fully taxable-equivalent adjustment (FTE)	28,026	34,229	-	41	13,111		29		75,436

Net interest income (FTE)¹	2,143,480	432,472	394,451	265,764	(123,355	)	514,655		3,627,467
Provision for loan losses²	179,942	33,865	34,993	5,925	150		53,266		308,141

Net interest income after provision for loan losses	1,963,538	398,607	359,458	259,839	(123,505	)	461,389		3,319,326

Noninterest income	919,469	466,725	265,363	794,369	418,950		(12,209	)	2,852,667
Noninterest expense	1,923,365	565,839	585,396	763,526	(47,553	)	(12,137	)	3,778,436

Total contribution before taxes	959,642	299,493	39,425	290,682	342,998		461,317		2,393,557
Provision for income taxes³	347,105	55,690	3,563	106,871	92,505		164,931		770,666

Net income	$612,537	$243,803	$35,862	$183,811	$250,493		$296,386		$1,622,891

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

² Provision for loan losses represents net charge-offs for the segments.

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

Note 16 – Accumulated Other Comprehensive Income

Comprehensive income was calculated as follows:


	Three Months Ended September 30			Nine Months Ended September 30
(Dollars in thousands)	2008		2007	2008		2007
Comprehensive income:
Net income	$312,444		$420,164	$1,143,361		$1,622,891
Other comprehensive income:
Change in unrealized gains (losses) on securities, net of taxes	(84,252	)	224,381	(733,952	)	33,000
Change in unrealized gains on derivatives, net of taxes	47,366		101,094	4,089		25,838
Change related to employee benefit plans, net of taxes	3,241		5,605	11,004		40,100

Total comprehensive income	$278,799		$751,244	$424,502		$1,721,829

The components of accumulated other comprehensive income were as follows:


(Dollars in thousands)	September 30 2008		December 31 2007
Unrealized net gain on available for sale securities	$959,995		$1,693,947
Unrealized net gain on derivative financial instruments	162,717		158,628
Employee benefit plans	(234,422	)	(245,426	)

Total accumulated other comprehensive income	$888,290		$1,607,149

Note 17 – Severance Expense

In 2007, the Company initiated its E² Efficiency and Productivity Program (“E²”). E² includes a series of initiatives aimed at reducing the Company’s expense growth. As part of the E² program, the Company is reviewing its organizational design in order to achieve scalability in its core processes, reduce redundant and overlapping activities, and reduce complexity in the organizational structure. In

Notes to Consolidated Financial Statements (Unaudited) - Continued

2007, the Company recognized severance expense of $45.0 million relating to approximately 2,400 positions expected to be eliminated through 2007 and 2008. As of September 30, 2008, accrued severance expense was $5.2 million. Severance expense was classified as other noninterest expense in the Consolidated Statements of Income and was recorded within the Corporate Other and Treasury reporting segment.

Note 18 – Investment in Common Shares of The Coca-Cola Company

In the second and third quarters of 2008, the Company completed the following three-part strategy with respect to its remaining 43.6 million common shares of Coke: (i) a market sale of 10 million shares (see Note 3 “Securities Available for Sale,” to the Consolidated Financial Statements), (ii) a charitable contribution of approximately 3.6 million shares to the SunTrust Foundation (see Note 3 “Securities Available for Sale,” for expanded discussion) and (iii) the execution of equity forward agreements on 30 million shares.

A consolidated subsidiary of SunTrust Banks, Inc. owns approximately 22.9 million Coke shares and a consolidated subsidiary of SunTrust Bank owns approximately 7.1 million Coke shares. These 30 million Coke shares had a total fair value of approximately $1.59 billion at September 30, 2008, along with a de minimis cost basis. These two subsidiaries entered into separate equity forward agreements (the “Agreements”) on their respective holdings of Coke common shares with a large, unaffiliated financial institution (the “Counterparty”). Contemporaneously with entering into the Agreements, SunTrust Banks Inc. and SunTrust Bank each issued a senior floating rate note (the “Notes”) to the Counterparty.

The Federal Reserve, the Company’s primary banking regulator, granted permission to include the minimum proceeds from the Agreements as Tier 1 Capital based on the terms of the Agreements and the Notes. As a result, the Company was permitted to recognize approximately $728 million, or 43 basis points, of additional Tier 1 Capital, upon the effective date of the Agreements. This $728 million is the estimated tax-adjusted amount that the Company will receive from settling the Agreements for the minimum amount payable to the Company under the Agreements (approximately $1.16 billion).

The Agreements

The Agreements are comprised of two components: variable forward agreements and share forward agreements. The Agreements, in their entirety, are derivative financial instruments based on the criteria in SFAS No. 133. During their approximate six and a half and seven year terms, the Agreements provide the Company with a hedge of the market price of Coke based on the strike prices of the equity collars embedded in the variable forward agreements. The Agreements effectively ensure that the Company will be able to sell the 30 million Coke shares at a price no less than approximately $38.67 per share, while permitting participation in any future appreciation in the value of the Coke shares up to approximately $66.02 per share on 22.9 million shares and approximately $65.72 per share on 7.1 million shares. These per share strike prices were set based on the daily volume weighted average price (“VWAP”) of Coke over a defined number of trading days prior to the effective date.

The Agreements resulted in zero cost equity collars pursuant to the provisions of SFAS No. 133. The terms of the equity collars provide for cash settlement if the settlement price of Coke shares is at or below the put strike price and, in all other cases, the Company may elect either cash or physical settlement. The share forward agreements provide the Company the right, but not the obligation, to sell to the Counterparty, at prevailing market prices at the time of settlement, any of the 30 million Coke shares that are not delivered to the Counterparty in settlement of the variable forward agreements. The Company expects to sell all of the Coke shares upon settlement or early termination of the Agreements, either under the terms of the Agreements or through another market transaction.

The Agreements contain a stated dividend schedule, with an assumed growth rate of quarterly Coke dividends based on current market dividends at the time of the trade, and a true-up feature in the event actual dividends are different from expected amounts. Should actual dividends differ from the dividend schedule in the Agreements, the differential will accrue to either the Company or Counterparty, as appropriate, and the net of all such adjustments will increase or decrease the amounts payable to the Company upon settlement of the Agreements.

The Agreements may also terminate earlier upon certain events of default, extraordinary events regarding Coke, adverse regulatory changes for the Company or the Counterparty, and other typical termination events. In such event, the termination price is the higher of fair value upon termination or intrinsic value. In addition, the Company may early terminate the Agreements at their fair values at any time, subject to approval by the Federal Reserve. The settlement provisions are the same as would occur upon maturity, with either cash or physical settlement at the Company’s election (subject to required cash settlement if the settlement price of the Coke shares is at or below the strike price of the purchased put).

Notes to Consolidated Financial Statements (Unaudited) - Continued

Execution of the Agreements (including the pledges of the Coke shares pursuant to the terms of the Agreements) did not constitute a sale of the Coke shares under U.S. GAAP for several reasons, including that ownership of the shares was not legally transferred to the Counterparty.

In accordance with the provisions of SFAS No. 133, the Company has designated the Agreements as cash flow hedges of the Company’s probable forecasted sales of its Coke shares for overall price volatility below the strike prices on the floor (purchased put) and above the strike prices on the ceiling (written call). Although the Company is not required to deliver its Coke shares under the Agreements, the Company has asserted that it is probable, as defined by SFAS No. 133, that it will sell all of its Coke shares at or around the settlement date of the Agreements. The Federal Reserve’s approval for Tier 1 Capital was significantly based on this expected disposition of the Coke shares under the Agreements or in another market transaction. Both the sale and the timing of such sale remain probable to occur as designated. At least quarterly, the Company assesses hedge effectiveness and measures hedge ineffectiveness, with the effective portion of the changes in fair value of the Agreements generally recorded in accumulated other comprehensive income and any ineffective portions generally recorded in trading gains and losses. None of the components of the Agreements’ fair values are excluded from the Company’s assessments of hedge effectiveness. Potential sources of ineffectiveness include changes in market dividends and certain early termination provisions; for the quarter ended September 30, 2008, such ineffectiveness was de minimis. Other than potential measured hedge ineffectiveness, no amounts will be reclassified from accumulated other comprehensive income over the next twelve months and any remaining amounts recorded in accumulated other comprehensive income will be reclassified to earnings when the probable forecasted sales of the Coke shares occur.

The Notes

Contemporaneously with entering into the Agreements, SunTrust Banks, Inc. and SunTrust Bank issued approximately $885 million and $275 million of Notes, respectively, to the Counterparty, which each carry a variable coupon rate of one month LIBOR plus a fixed spread and are scheduled to mature in 2018 and 2017, respectively. The Notes have been pledged by the Counterparty to secure its obligations under the Agreements.

Upon or after settlement of the Agreements, the interest rates on the Notes will be reset to then-current market rates based on either a remarketing process or dealer quotations, depending on whether any Notes are then owned by the Counterparty. In the event of a remarketing, Notes owned by the Counterparty or its affiliates would be separately remarketed in whole, but not in part, by a wholly-owned broker-dealer subsidiary of SunTrust Banks, Inc., as remarketing agent, by soliciting bids from third parties using commercially reasonable efforts. If successful, the remarketings would result in third parties purchasing the Notes from the Counterparty at par at a floating interest rate and a credit spread that should approximate the then-current market rates for debt of the Company with similar terms. If the first remarketing fails, meaning that no bidders are willing to bid for the Notes at rates that would deliver par proceeds to the Counterparty, the Company must collateralize the Notes. The interest rate on any Notes not owned by the Counterparty or its affiliates would be reset through a dealer quotation process (in lieu of a remarketing) to a rate determined by reference to the then-current market rates on the Company’s senior unsecured debt of like remaining tenor.

The terms of the Notes provide for an interest rate make-whole payment to potentially be paid by the Company to the Counterparty upon the occurrence of certain events that result in either an accelerated remarketing of the Notes or an early acceleration of the maturity of the Notes. The make-whole is paid with respect to an acceleration of the Note principal upon the occurrence of certain events of default under the Note, which are typical events of default commonly found in debt instruments (such as the failure by the Company to pay interest or principal when due, or the insolvency of the Company) or in relation to a failure to post collateral, if required. All such events that could trigger a make-whole payment by the Company are currently remote of occurring.

Note 19 – Subsequent Events

On October 27, 2008, the Company announced that it had received preliminary approval from the U.S. Department of the Treasury to participate in the Treasury Department’s Capital Purchase Program by selling $3.5 billion in preferred stock and related warrants to the U.S. Treasury under the Emergency Economic Stabilization Act of 2008. If the Company completes the sale of such preferred stock to the U.S. Treasury, as is expected, the Company’s Tier 1 and Total Capital ratios should improve significantly. However, the U.S. Treasury’s purchase of such preferred stock from SunTrust is subject to certain conditions and the execution of definitive agreements.

Separately, the Board of Directors of SunTrust voted to approve a 30% reduction in the Company’s dividend on its common stock. This cut will be effective for the fourth quarter of 2008, at which time the quarterly dividend rate will become $0.54 per common share.

Item 2.

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

Important Cautionary Statement About Forward-Looking Statements

This report may contain forward-looking statements. Statements that do not describe historical or current facts, including statements about beliefs and expectations, are forward-looking statements. These statements often include the words “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “targets,” “initiatives,” “potentially,” “probably,” “projects,” “outlook” or similar expressions or future conditional verbs such as “may,” “will,” “should,” “would,” and “could.” Such statements are based upon the current beliefs and expectations of 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 we do 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 are subject to 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 Exhibit 99.3 to our Current Report on Form 8-K filed on October 23, 2008 with the Securities and Exchange Commission, which is available at the Securities and Exchange Commission’s internet site (http://www.sec.gov) and is incorporated by reference herein. Those factors include: difficult market conditions have adversely affected our industry; current levels of market volatility are unprecedented; the soundness of other financial institutions could adversely affect us; there can be no assurance that recently enacted legislation will stabilize the U.S. financial system; the impact on us of recently enacted legislation, in particular the Emergency Economic Stabilization Act of 2008 and its implementing regulations, and actions by the FDIC, cannot be predicted at this time; credit risk; weakness in the economy and in the real estate market, including specific weakness within our geographic footprint, has adversely affected us and may continue to adversely affect us; weakness in the real estate market, including the secondary residential mortgage loan markets, has adversely affected us and may continue to adversely affect us; as a financial services company, adverse changes in general business or economic conditions 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 revenue and expense, the value of assets and obligations, and the availability and cost 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; we may be required to repurchase mortgage loans or indemnify mortgage loan purchasers as a result of breaches of representations and warranties, borrower fraud, or certain borrower defaults, which could harm our liquidity, results of operations and financial condition; clients could pursue alternatives to bank deposits, causing us to lose a relatively inexpensive source of funding; consumers may decide not to use banks to complete their financial transactions, which could affect net income; we have businesses other than banking which subject 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 and revenues; we rely on other companies to provide key components of our business infrastructure; we rely on our systems, employees and certain counterparties, and certain failures could materially adversely affect our operations; we depend on the accuracy and completeness of information about clients and counterparties; regulation by federal and state agencies could adversely affect our business, revenue and profit margins; competition in the financial services industry is intense and could result in losing business or reducing 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; we may not pay dividends on our common stock; our ability to receive dividends from our subsidiaries accounts for most of our revenue and could affect our liquidity and ability to pay dividends; significant legal actions could subject us to substantial uninsured liabilities; recently declining values of residential real estate may increase our credit losses, which would negatively affect our financial results; deteriorating credit quality, particularly in real estate loans, has adversely impacted us and may continue to adversely impact us; disruptions in our ability to access global capital markets may negatively affect our capital resources and liquidity; any reduction in our credit rating could increase the cost of our funding from the capital markets; 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; we may not be able 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 our financial condition and results of operations, and these require us to make estimates about matters that are uncertain; changes in our accounting policies or in accounting standards could materially affect how we report our financial results and condition; our stock price can be volatile; our disclosure controls and procedures may not prevent or detect all errors or acts of fraud; our financial instruments carried at fair value expose us to certain market risks; our revenues derived from our investment securities may be volatile and subject to a variety of risks; we may enter into transactions with off-balance sheet affiliates or our subsidiaries that could result in current or future gains or losses or the possible consolidation of those entities; and we are subject to market risk associated with our asset management and commercial paper conduit businesses.

We are one of the nation’s largest commercial banking organizations and our headquarters are located in Atlanta, Georgia. Our 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 our geographic footprint, we operate under four business segments: Retail and Commercial, Wholesale Banking, Wealth and Investment Management, and Mortgage. In addition to traditional deposit, credit, and trust and investment services offered by SunTrust Bank, our other subsidiaries provide mortgage banking, credit-related insurance, asset management, securities brokerage, and capital market services. As of September 30, 2008, we had 1,692 full-service branches, including 322 in-store branches, and continue to leverage technology to provide customers the convenience of banking on the Internet, through 2,506 automated teller machines and via twenty-four hour telebanking.

The following analysis of our financial performance for the three and nine months ended September 30, 2008 should be read in conjunction with the financial statements, notes to consolidated financial statements and other information contained in this document and our 2007 Annual Report on Form 10-K. Certain reclassifications have been made to prior year financial statements and related information to conform them to the 2008 presentation. Effective May 1, 2008, we acquired GB&T Bancshares, Inc. (“GB&T”). The results of operations of GB&T were included with ours beginning May 1, 2008. Prior periods do not reflect the impact of the merger. In Management’s Discussion and Analysis (“MD&A”), net interest income, net interest margin and the efficiency ratios are presented on a fully taxable-equivalent (“FTE”) and annualized basis. The FTE basis adjusts for the tax-favored status of net interest income from certain loans and investments. We believe 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. Reconcilements for all non-U.S. GAAP measures are provided on pages 44 through 46.

EXECUTIVE OVERVIEW

During the third quarter, macro-economic conditions continued to negatively impact liquidity and credit quality. The economy weakened as evidenced by a further deterioration in the labor market and rising unemployment, volatile equity markets, and declining home values. During the quarter, financial markets experienced unprecedented events, and the market exhibited extreme volatility as economic fears and illiquidity persisted. Concerns regarding increased credit losses from the weakening economy negatively affected capital and earnings of most financial institutions. In addition, certain financial institutions failed or merged with other stronger institutions and two of the government sponsored housing enterprises entered into conservatorship with the U.S. government. Liquidity in the debt markets remains low in spite of Treasury and Federal Reserve efforts to inject capital into financial institutions, and as a result, asset values continue to be under pressure.

In October 2008, the United States government established the Emergency Economic Stabilization Act of 2008 (the “Act”) in response to the current instability in the financial markets. The specific implications of the Act are wide and include the authorization given to the Secretary of the Treasury to establish the Troubled Asset Relief Program (“TARP”) to purchase troubled assets from financial institutions. The definition of troubled assets is broad but includes residential and commercial mortgages, as well as mortgage-related securities originated on or before March 14, 2008, if the Secretary determines the purchase promotes financial market stability.

Also in October 2008, the United States government purchased preferred equity interests in some of the country’s largest financial institutions under provisions of the TARP Capital Purchase Program. In an attempt to revitalize the struggling economy and inject necessary liquidity and capital into the banking system, the government will use up to $250 billion dollars, under provisions of the Act, to purchase preferred stock in certain institutions. During the fourth quarter of 2008, we received preliminary approval from the U.S. Treasury for the sale of $3.5 billion in preferred stock and related warrants to the U.S. Treasury under the Capital Purchase Program of the Act. Our sale of preferred stock under the Capital Purchase Program is subject to certain conditions and the execution of definitive agreements. Our decision to participate was made to enhance our already solid capital position and to allow us to further expand our business. Refer to further discussion in the “Liquidity Risk” section of this MD&A for additional details.

In addition, during October 2008, the Federal Deposit Insurance Corporation (“FDIC”) announced that it would temporarily guarantee certain new debt issued by insured banks and qualifying bank holding companies and temporarily expand its insurance to cover all noninterest-bearing transaction accounts. It was also announced that the Federal Reserve will finalize a program to serve as a buyer of commercial paper. These actions, among others, are anticipated to stimulate consumer confidence in the economy and financial institutions, as well as encourage financial institutions to continue lending to businesses, consumers, and each other.

During the third quarter, we improved our loan mix and maintained our net interest income at levels comparable to the second quarter, and improved certain fee income categories. Further, we tightly managed growth of core operating expenses which reflected the

continuing success of our ongoing program to improve efficiency and productivity, although expenses continue to be pressured by increased credit-related costs. Our capital position further solidified during the quarter as we completed the last of three separate transactions to optimize our long-term holdings of The Coca-Cola Company (“Coke”) common stock. See “Investment in Common Shares of The Coca-Cola Company” in Note 18 to the Consolidated Financial Statements and this MD&A for additional discussion.

We reported net income available to common shareholders for the third quarter of 2008 of $307.3 million, or $0.88 per average common diluted share, compared to $412.6 million, or $1.18 per average common diluted share, in the third quarter of 2007. Net income available to common shareholders for the first nine months of 2008 was $1,126.2 million, or $3.22 per average common diluted share, compared to $1,600.5 million, or $4.52 per average common diluted share for the nine months ended September 30, 2007. Growth in core business revenues coupled with disciplined expense management were more than offset by increased credit costs associated with the continued deterioration in the housing market, as well as a loss on the commitment to purchase certain auction rate securities (“ARS”). Positively impacting the first nine months of 2008, were a gain on the sale of Coke common stock, gain on sale of certain businesses and premises, gain from our interest in Visa, Inc. (“Visa”), partially offset by an increase in the litigation reserve, and net mark-to-market valuation gains related to our publicly-traded debt and related hedges partially offset by mark-to-market losses on illiquid trading securities. The nine month results for 2008 included a $732.2 million pre-tax gain on the sale and contribution of Coke common stock compared with a $234.8 million pre-tax gain from the sale of Coke common stock during the same period in 2007.

Fully taxable-equivalent net interest income was $1,175.7 million for the third quarter of 2008, a decrease of $43.5 million, or 3.6%, from the third quarter of 2007. Average earning assets declined slightly primarily due to a reduction in interest earning trading assets and loans held for sale, partially offset by growth in commercial loans. Net interest margin decreased eleven basis points in the third quarter of 2008 to 3.07% from 3.18% in the third quarter of 2007. The decrease in net interest margin was primarily the result of the decline in market interest rates, the increase in nonperforming assets, a reduction in Coke and Federal Home Loan Bank (“FHLB”) dividend income, and LIBOR rate volatility during September in particular. On a sequential quarter basis, net interest margin decreased six basis points due to the detrimental impact of higher nonperforming loans, declining interest rates, and a shift in loan and deposit mix.

Fully taxable-equivalent net interest income for the nine months ended September 30, 2008, was $3,528.5 million, a decrease of $99.0 million, or 2.7%, from the same period in 2007. However, net interest margin remained relatively unchanged, decreasing by only one basis point, as balance sheet management strategies executed in 2007 led to a $3.8 billion, or 2.5%, decline in average earning assets, namely loans held for sale and interest bearing trading assets, which was partially offset by growth in commercial loans.

Provision for loan losses was $503.7 million in the third quarter of 2008, an increase of $356.7 million from the same period of the prior year. The provision for loan losses was $111.6 million higher than net charge-offs of $392.1 million for the third quarter of 2008 adding eight basis points to the allowance for loan and lease losses (“ALLL”) on a sequential quarter basis. The ALLL increased $658.5 million, or 51.3%, from December 31, 2007. As of September 30, 2008, the ALLL was 1.54% of total loans compared to 1.05% as of December 31, 2007. The ALLL as of September 30, 2008 represented 62.1% of period-end nonperforming loans, the majority of which were secured by residential real estate. The increases in provision for loan losses and resulting increase in the ratio of ALLL to total loans outstanding is reflective of declining real estate values and the associated deterioration in real estate-related loan portfolios, as well as the increase in the size of the loan portfolio. Annualized net charge-offs to average loans were 1.24% for the third quarter of 2008 compared to 0.34% for the same period last year and 1.04% for the quarter ending June 30, 2008. We continued to record provision for loan losses at elevated levels in the third quarter of 2008 relative to 2007 due to deterioration in market conditions.

Noninterest income increased $466.1 million, or 56.9%, from the third quarter of 2007, driven primarily by $341.0 million in market valuation gains in trading account profits/(losses) and commissions related to our publicly-traded debt and related hedges carried at fair value as well as increases in combined mortgage-related income. Also contributing to the increase were incremental securities gains, double digit growth in service charges on deposit accounts and investment banking income, partially offset by losses on our offer to purchase certain ARS and a decline in trust and investment management income. Results for the third quarter of 2008 included the gain on the non-taxable contribution of Coke common stock of $183.4 million, $81.8 million in gain on the sale of a nonstrategic subsidiary, and mark-to-market valuation gains on our debt and related hedges of $341.0 million compared to $63.0 million of mark-to-market gains in the same period of 2007. These mark-to-market gains were related to the increase in our credit spread on our publicly traded debt as the impact of the global credit crisis affected all financial institutions. When stability in the debt market returns, spreads are expected to tighten, and if this occurs these valuation gains will reverse. The third quarter of 2008 also included a $172.8 million loss, including fines, related to our decision to offer to purchase certain ARS and mark-to-market losses on illiquid trading securities and loan warehouses of $136.9 million. We reduced our exposure to distressed securities purchased from affiliates in the fourth quarter of 2007 by an additional 55% from the prior quarter to approximately $345.8 million at quarter end and recorded $12.1 million in net mark-to-market losses on these securities during the quarter. Securities gains increased $172.1 million compared to the third quarter of 2007 due primarily to the gain from contribution of Coke common shares of $183.4 million, partially offset by other-than-temporary impairment charges related to certain securities in the available for sale portfolio.

For the first nine months of 2008, noninterest income increased $903.0 million, or 31.7%, from $2,852.7 million for the same period last year. In addition to the quarterly factors described above, results for the first nine months of 2008 included an $86.3 million gain on Visa’s initial public offering, an incremental $57.1 million gain on disposition of our interest in Lighthouse Investment Partners, a $29.6 million gain on sale of the First Mercantile Trust, a retirement plan services subsidiary, incremental gains of $314.0 million on the sale of Coke common stock, and a $37.0 million net gain on sale/leaseback of corporate owned real estate. Partially offsetting these gains were combined securities losses recorded in the first and third quarters of 2008 of $81.8 million in conjunction with available for sale securities that were determined to be other-than-temporarily impaired, as well as a decline in trading account profits/(losses) and commissions primarily related to valuation losses on trading assets that were acquired in the fourth quarter of 2007, net of valuation gains on our publicly-traded debt and related hedges. In 2007, $81.0 million of trading gains were recognized related to financial assets and liabilities that we elected to record at fair value in connection with the adoption of SFAS No. 159. Mortgage production income increased 190.1% over the first nine months of 2007 primarily due to lower valuation losses resulting from spread widening and the earlier recognition of servicing value and origination fees resulting from our election to record certain mortgage loans at fair value beginning in May 2007, partially offset by a decline in loan production. The prior period also included $42.2 million of income reductions recorded in conjunction with our election to record certain loans held for sale at fair value.

Noninterest expense was $1,668.1 million for the third quarter of 2008, an increase of $376.9 million, or 29.2%, from the same period of the prior year. Approximately half of the increase was related to the tax free contribution of Coke common stock to our charitable foundation and the majority of the remaining increase was credit-related as these expenses grew by $178.2 million over the third quarter of 2007, excluding the incremental cost of additional loss mitigation staff. Also contributing to the increase was a $20.0 million increase in our estimate of future liability related to the Visa litigation as a result of a settlement reached by Visa.

For the first nine months of 2008, noninterest expense was $4,301.8 million, an increase of $523.4 million, or 13.9%, from $3,778.4 million for the same period in 2007. In addition to the quarterly factors described above, the increase was due to our election during the second quarter of 2007 to record certain newly-originated mortgage loans held for sale at fair value, as origination costs associated with these loans are no longer deferred. Offsetting these increases was a $39.1 million reversal of a portion of the accrued liability associated with Visa litigation, for which we recorded $76.9 million in the fourth quarter of 2007. Also offsetting increases was our E² Efficiency and Productivity Program that generated year-to-date gross savings of approximately $397.4 million.

The Tier 1 Capital and Total Capital ratios improved from 6.93% and 10.30%, respectively, at December 31, 2007 to 8.15% and 11.16% at September 30, 2008. The primary drivers of the increase were the second and third quarter transactions related to our Coke common stock. In June, we sold 10 million shares of Coke common stock, which increased Tier 1 Capital in the second quarter by approximately $345 million, or 20 basis points. In July, we executed the remaining aspects of the capital strategy to optimize our holdings of the Coke common stock, which strengthened our Tier 1 Capital position by an additional 47 basis points. We executed a transaction involving 30 million shares of Coke common stock, generating 43 basis points, as of the transaction date, of Federal Reserve approved Tier 1 capital. In addition, in July 2008, we contributed our remaining 3.6 million shares of Coke common stock to the SunTrust Foundation. This contribution will allow the legacy of our relationship with The Coca-Cola Company to benefit communities for years to come, while simultaneously reducing ongoing charitable contribution expense. The contribution resulted in an increase in Tier 1 Capital during the third quarter of approximately $68.5 million, or an estimated 4 basis points. These transactions also increased the Total Capital ratio an estimated 11 basis points. In addition, on March 4, 2008, we issued $685 million of trust preferred securities, which qualified as Tier I Capital, and on March 17, 2008, we issued $500 million of subordinated notes, which favorably impacted our Total Capital ratio. Tangible equity to tangible assets also increased 9 basis points during the year to 6.40% as of September 30, 2008.

Provision for income taxes decreased $205.7 million, or 134.5%, for the three months ended September 30, 2008 as compared to the same period in 2007. For the nine months ended September 30, 2008, provision for income taxes decreased $453.5 million, or 65.2%, compared to the same period in 2007. The decreases were primarily attributable to a lower level of earnings coupled with the tax benefit resulting from our contribution of Coke common stock shares.


Selected Quarterly Financial Data		Table 1


	Three Months Ended September 30				Nine Months Ended September 30
(Dollars in millions, except per share data) (Unaudited)	2008		2007		2008		2007
Summary of Operations
Interest, fees and dividend income	$2,017.3		$2,515.3		$6,342.0		$7,587.2
Interest expense	871.1		1,323.1		2,899.2		4,035.2

Net interest income	1,146.2		1,192.2		3,442.8		3,552.0
Provision for loan losses	503.7		147.0		1,511.7		308.1

Net interest income after provision for loan losses	642.5		1,045.2		1,931.1		3,243.9
Noninterest income	1,285.2		819.1		3,755.7		2,852.7
Noninterest expense	1,668.1		1,291.2		4,301.8		3,778.4

Income before provision for income taxes	259.6		573.1		1,385.0		2,318.2
Provision (benefit) for income taxes	(52.8	)	152.9		241.6		695.3

Net income	312.4		420.2		1,143.4		1,622.9
Preferred stock dividends	5.1		7.6		17.2		22.4

Net income available to common shareholders	$307.3		$412.6		$1,126.2		$1,600.5

Net interest income - FTE	$1,175.7		$1,219.2		$3,528.5		$3,627.5
Total revenue - FTE	2,460.9		2,038.3		7,284.2		6,480.2
Total revenue - FTE excluding securities (gains)/losses, net	2,287.9		2,037.3		6,622.0		6,242.8

Net income per average common share:
Diluted	0.88		1.18		3.22		4.52
Basic	0.88		1.19		3.23		4.57
Dividends paid per average common share	0.77		0.73		2.31		2.19
Book value per common share	49.32		50.01
Market price:
High	64.00		90.47		70.00		94.18
Low	25.60		73.61		25.60		73.61
Close	44.99		75.67		44.99		75.67

Selected Average Balances
Total assets	$173,888.5		$174,653.4		$175,445.7		$178,693.6
Earning assets	152,319.8		152,327.6		152,601.1		156,438.9
Loans	125,642.0		119,558.6		124,702.4		119,738.9
Consumer and commercial deposits	100,199.8		96,707.6		101,028.7		97,471.4
Brokered and foreign deposits	15,799.8		21,139.9		15,446.8		23,925.4
Total shareholders' equity	17,981.9		17,550.2		18,045.4		17,732.3

Average common shares - diluted (thousands)	350,970		349,592		349,613		354,244
Average common shares - basic (thousands)	349,916		346,150		348,409		350,501

Financial Ratios (Annualized)
Return on average total assets	0.71	%	0.95	%	0.87	%	1.21	%
Return on average assets less net unrealized securities gains	0.45		0.93		0.53		1.09
Return on average common shareholders' equity	6.99		9.60		8.57		12.42
Return on average realized common shareholders' equity	4.55		9.86		5.56		11.70
Net interest margin	3.07		3.18		3.09		3.10
Efficiency ratio	67.78		63.35		59.06		58.31
Tangible efficiency ratio	67.03		62.13		57.63		57.18
Total average shareholders' equity to average assets	10.34		10.05		10.29		9.92
Tangible equity to tangible assets	6.40		6.36

Capital Adequacy
Tier 1 capital ratio	8.15	%	7.44	%
Total capital ratio	11.16		10.72
Tier 1 leverage ratio	7.98		7.28


Selected Quarterly Financial Data, continued		Table 1

Three Months Ended
September 30

Nine Months Ended
September 30

(Dollars in millions) (Unaudited)

2008

2007

2008

2007

Reconcilement of Non US GAAP Financial Measures

Net income

$312.4

$420.2