SCHEDULE 14A INFORMATION
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SunTrust Banks, Inc.

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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

 

To the Shareholders of

SunTrust Banks, Inc.

 

The Annual Meeting of Shareholders of SunTrust Banks, Inc. will be held in Suite 105 on the 1st floor of SunTrust Plaza Garden Offices, 303 Peachtree Center Avenue, Atlanta, Georgia, on Tuesday, April 17, 2007, at 9:30 a.m. local time, for the following purposes:

 

 

Only shareholders of record at the close of business on February 27, 2007 will be entitled to notice of and to vote at the Annual Meeting or any adjournment thereof.

 

For your convenience, we are also offering an audio webcast of the meeting. If you choose to listen to the webcast, go to “Investor Relations” located under “About SunTrust” at www.suntrust.com shortly before the meeting time and follow the instructions provided. If you miss the meeting, you may listen to a replay of the webcast on our site beginning the afternoon of April 17.

 

Your attention is directed to the attached Proxy Statement for more complete information regarding the matters to be acted upon at the Annual Meeting.

 

By Order of the Board of Directors

 

Raymond D. Fortin,

Corporate Secretary

 

March 9, 2007.

 

IMPORTANT NOTICE

 

Whether or not you plan to attend the Annual Meeting, please vote your shares by: (1) a toll-free telephone call, (2) the Internet, or (3) completing, signing, dating and returning the enclosed proxy as soon as possible in the postage paid envelope provided.

 

TABLE OF CONTENTS

 

 

SUNTRUST BANKS, INC.

303 PEACHTREE STREET, N.E.

ATLANTA, GEORGIA 30308

 

 

 

 

The enclosed proxy is solicited on behalf of the Board of Directors of SunTrust Banks, Inc. in connection with the Annual Meeting of Shareholders of SunTrust to be held in Suite 105 on the 1st floor of SunTrust Plaza Garden Offices, 303 Peachtree Center Avenue, Atlanta, Georgia, on Tuesday, April 17, 2007, at 9:30 a.m. local time. This Proxy Statement and the enclosed proxy are being first mailed to SunTrust’s shareholders on or about March 9, 2007.

 

Voting your shares.  The enclosed proxy is for use if you are unable to attend the Annual Meeting in person or wish to have your shares voted by proxy even if you attend the Annual Meeting. You may revoke the proxy at any time before it is exercised by notice to the Corporate Secretary of SunTrust, by submitting a proxy having a later date, or by appearing at the Annual Meeting and voting in person. All shares represented by valid proxies received pursuant to this solicitation and not revoked before they are exercised will be voted in the manner specified therein. If no specification is made, the proxies for the proposals described below will be voted as recommended by the Board of Directors.

 

Method of Voting.  You can simplify your voting and reduce SunTrust’s costs by voting your shares via telephone or the Internet. The telephone and Internet voting procedures are designed to allow shareholders to vote their shares and to confirm that their instructions have been properly recorded. If your shares are held in the name of a bank or broker, the availability of telephone and Internet voting will depend on the voting processes of the applicable bank or broker. Therefore, we recommend that you follow the voting instructions on the form you receive. If you do not choose to vote by telephone or the Internet, please date, sign and return the proxy card.

 

Webcast of Annual Meeting.  SunTrust is pleased to offer an audio webcast of the 2007 Annual Meeting. If you choose to listen to the webcast, go to “Investor Relations” located under “About SunTrust” at www.suntrust.com shortly before the meeting time and follow the instructions provided. If you miss the meeting, you may listen to a replay of the webcast on our site beginning the afternoon of April 17 and available until May 17, 2007.

 

Please note that you will not be able to vote your shares via the webcast. If you plan to listen to the webcast, please submit your vote using one of the methods described above prior to the meeting.

 

SunTrust maintains a standing Governance and Nominating Committee, which we refer to in this section as the Committee, comprised solely of independent directors who are responsible for identifying individuals qualified to become Board members and recommending to the Board director nominees. The Committee periodically reviews the size and composition of the Board and determines whether it is necessary to add or replace directors. The Committee’s charter is available on SunTrust’s website at www.suntrust.com.

 

Nominees for director will be selected based on the following criteria: (i) outstanding achievement in their careers; (ii) broad experience; (iii) independence; (iv) financial expertise; (v) integrity; (vi) financial integrity; (vii) ability to make independent, analytical inquiries; (viii) understanding of the business environment; and (ix) willingness to devote adequate time to Board duties. The Board believes that each director should have, and nominees are expected to have, the capacity to obtain a basic understanding of: (i) the principal operational and financial objectives and plans and strategies of SunTrust; (ii) the results of operations and financial condition of SunTrust and of any significant subsidiaries or business segments; and (iii) the relative standing of SunTrust and its business segments in relation to its competitors. The Committee considers it essential that the Audit Committee have at least one member who qualifies as an “audit committee financial expert.”

 

The Committee and the Board consider a variety of sources when selecting individuals as potential Board members. Generally, SunTrust does not retain a search firm to assist in the selection of directors. Historically, most of SunTrust’s director nominees have served on one of SunTrust Bank’s local boards or the board of a company acquired by SunTrust, and have had a leadership position with an entity that is located in a community served by SunTrust. This practice has served SunTrust well and has been used in part to select the candidates that were considered as nominees. The Committee and the Board consider SunTrust Bank local board members to be an excellent source for nominees because their service provides them a better understanding of SunTrust and its operations and increases the level of contribution that individual can make to SunTrust and its constituents. In addition, the Committee considers for nominees certain chief executive officers of publicly held companies that are headquartered in SunTrust’s markets and directors of companies acquired by SunTrust. SunTrust senior management assembles the list of candidates that are to be considered by the Committee. The Committee and Board also take into consideration the diversity of the Board when selecting nominees. The Committee will review this process from time to time and may alter the process in its discretion.

 

The Committee will consider candidates for director nominees put forward by shareholders. Please refer to “Shareholder Nominations for Election to the Board” for a discussion of the requirements of a shareholder-nomination. The proposal should state how the proposed candidate meets the criteria described above and the shareholder must comply with the other requirements set forth in the section entitled “Shareholder Nominations for Election to the Board.” The Committee will consider candidates proposed by shareholders by evaluating such candidates in the same manner and using the criteria described above. The Committee will also adhere to all applicable laws and regulations.

 

The Board of Directors, under the terms of SunTrust’s bylaws, has previously determined that the number of directors constituting the Board shall be 19, with directors divided into 3 classes serving staggered 3-year terms. The Nominating and Governance Committee nominated 7 directors to stand for reelection as directors at the Annual Meeting in 2007: Robert M. Beall, II, Jeffrey C. Crowe, J. Hicks Lanier, Larry L. Prince, Frank S. Royal, M.D., and Phail Wynn, Jr. for a term expiring in 2010, and James M. Wells III for a term expiring in 2009. In addition to the nominees, there are 12 other directors continuing to serve on the Board, all of whose terms expire in 2008 and 2009 except for Thomas M. Garrott, whose term expires in 20007.

 

Shareholders are being asked to consider approving Item 3 (Proposal That Directors Be Elected Annually), which, if approved, will amend the Bylaws to eliminate the classified board structure. If this proposal is approved at the Annual Meeting, the current slate of directors will continue to serve for their elected terms. The proposed

amendments will not shorten the term of any director now serving on the Board or elected to serve on the Board at this Annual Meeting. If the proposal is approved, then the class of directors whose terms expire in 2008 will be elected to a one-year term at the 2008 Annual Meeting. Thereafter, upon expiration of each director’s term, he or she will be elected on an annual basis and the Board will be fully declassified in 2010. Please see Item 3 (Proposal That Directors Be Elected Annually) for more information on this proposal.

 

Thomas M. Garrott has informed the Company of his intention not to seek reelection to the Board of Directors and his term will expire immediately following the Annual Meeting in 2007. The Board has adopted a resolution which will re-set the size of the full Board of Directors at 18 persons immediately following the Annual Meeting in 2007.

 

The Board of Directors recommends a vote “FOR” all nominees.

 

You may not vote your proxy for the election of a person to fill a directorship for which no nominee is named in this Proxy Statement. If, at the time of the Annual Meeting, any of the nominees named in the enclosed proxy should be unable or decline to serve as a director, the proxies are authorized to be voted for such substitute nominee or nominees as the Board recommends. The Board has no reason to believe that any nominee will be unable or decline to serve as a director.

 

The following table sets forth for each nominee and each director whose term continues after the meeting his or her age, a brief description of his or her principal occupation and business experience during the last 5 years, certain other directorships held and how long he or she has been a director of SunTrust. Except for Mr. Humann and Mr. Wells, none of the nominees or directors is employed by SunTrust or any entity that is an affiliate of SunTrust.

 

 

The Board has 5 standing committees: (1) the Executive Committee; (2) the Audit Committee; (3) the Governance and Nominating Committee; (4) the Compensation Committee; and (5) the Risk Committee. The committee membership, the functions of each committee and the number of meetings held during 2006 are described below.

 

 

Regular meetings of the Board are held quarterly. During 2006, the Board held 5 meetings. Except for Mr. Isdell, all SunTrust directors attended at least 75% of the aggregate number of board meetings and meetings of the committees on which they served. SunTrust expects, but does not require, directors to attend the Annual Meeting of Shareholders. Last year, all but 1 director attended SunTrust’s Annual Meeting of Shareholders.

 

Director Compensation

 

The following table provides information concerning the compensation of the directors for our most recently completed fiscal year. Except as noted below, all of our directors are paid at the same rate. The differences among directors in the table below are a function of additional compensation for chairing a committee, varying numbers of meetings attended and corresponding payments of meeting fees, and payments for service on local advisory boards if applicable. In accordance with SEC regulations, grants of restricted stock are valued at the grant date fair value computed in accordance with Statement of Financial Accounting Standards No. 123 (Revised), “Share-Based Payment” (“FAS 123(R)”). We disclose such expense ratably over the vesting period but without reduction for assumed forfeitures (as we do for financial reporting purposes). We include in the table below the ratable portion of grants made both in the current and in prior years to the extent the vesting period for those grants fell in such year.

 

Each non-employee director received an annual retainer of $45,000 in 2006. The Chairs of each of the Governance and Nominating Committee, Compensation Committee, Risk Committee, and Audit Committee also received an additional retainer of $10,000. In addition, directors were paid a fee of $1,500 for each Board or committee meeting attended. Non-employee directors serving on the Board in April, 2006 also received a grant of either 1,200 shares of restricted stock or 1,200 restricted stock units, at their election. Such restricted stock or restricted stock units vest after 1 year. Each director has the option to defer receipt of restricted stock units for various time periods after retirement from the Board. Directors who also serve as directors of SunTrust’s subsidiaries only receive meeting attendance fees for service on those boards. Our non-employee directors do not participate in our non-equity incentive compensation plans or retirement plans.

 

Directors may defer their meeting and/or retainer fees payable to them under SunTrust’s Directors Deferred Compensation Plan. The return on deferred amounts is determined, at the election of the director, as if such funds had been invested in SunTrust common stock or at a floating interest rate equal to the prime interest rate in effect at SunTrust Bank computed on a quarterly basis. We report above-market or preferential earnings on nonqualified deferred compensation, including such earnings on nonqualified defined contribution plans, if any, in the column “Change in Pension Value and NQDC Earnings.” In the “All Other Compensation” column, we report payments for service on local advisory boards, if applicable, and our incremental cost of perquisites and personal benefits received by any director where the aggregate amount exceeds $10,000.

 

Additional Information Regarding Former Crestar Financial Corporation Directors.  Mr. Minor, Dr. Royal and Ms. Williams, all former Crestar directors, also participate in Crestar directors’ programs providing deferred benefits based on 1996 director awards plus their prior elective deferrals of Crestar retainers. Some of these benefits are calculated in SunTrust common stock equivalents and paid, after their SunTrust directorship ends, in whole shares of SunTrust common stock, with cash for any fractional share. In such cases, to the extent the deferred amounts and their earnings thereon are denominated in SunTrust common stock or common stock equivalents, in accordance with SEC regulations, we do not consider such earnings to be preferential or above-market and they are not reported in the table below.

 

Additional Information Regarding Former National Commerce Financial Corporation Directors.  Former directors of National Commerce Financial Corporation (“NCF”) could elect to defer their retainers as well as their meeting fees pursuant to the NCF Director’s Fees Deferral Plan. Mr. Farnsworth, a director of SunTrust since the NCF merger in October 2004, participates in this plan, and his account balance is now measured in phantom shares of SunTrust common stock, to be distributed when he terminates service on the SunTrust Board. No deferrals have been made to this plan after October 1, 2004. Because the deferred amounts and their earnings thereon are denominated in SunTrust common stock or common stock equivalents, such earnings are not considered to be preferential or above-market and are not reported in the table below.

 

Additional Information Regarding Thomas M. Garrott.  On October 1, 2004, the NCF merger date, SunTrust assumed an existing employment contract entered into between Thomas M. Garrott and NCF effective November 1, 2001. By amendment to this agreement on March 18, 2002, Mr. Garrott waived his right to receive any special compensation in the event of a change in control of NCF. On January 6, 2003, Mr. Garrott elected to be employed on part-time status through July 5, 2006, as provided by his employment agreement, and he resigned as chairman of the NCF Board of Directors and ceased participating in the day-to-day management of NCF. Mr. Garrott became an employee of SunTrust upon our merger with NCF, and he retired as an employee effective July 5, 2006. During his part-time employment status, Mr. Garrott was required to remain available to consult with the company and its employees, and was subject to certain restrictive covenants, including a non-competition restriction, and was paid the following remuneration: (1) an annual salary of approximately $477,000, adjusted annually for inflation, (2) continued participation in retirement, compensation (including stock incentive programs) and welfare plans (with medical and dental coverage for life for him and his spouse) at a level no less than his highest levels of participation or coverage during the last 12 months he was employed by NCF on a full-time basis, and (3) an office and support services. The agreement also required us to make stock option grants in 2005 and 2006 at the same level of Mr. Garrott’s participation in the NCF stock option plans in 2002. Accordingly, we granted to Mr. Garrott a stock option on each of February 8, 2005 and February 14, 2006 for 122,488 shares, exercisable at the then fair market values of $73.14 and $71.03 per share, respectively. These options vested upon his retirement on July 5, 2006 and may be exercised until 5 years following retirement using cash, SunTrust common stock, or both. Mr. Garrott also participated in supplemental pension plans of NCF and SunTrust, which are described later in this Proxy Statement.

 

2006 DIRECTOR COMPENSATION

 

 

 

 

Corporate Governance

 

The Board of Directors has determined that a majority of SunTrust’s directors are independent. In determining director independence, the Board broadly considers all relevant facts and circumstances, including the rules of the New York Stock Exchange. The Board considers the issue not merely from the standpoint of a director, but also from that of persons or organizations with which the director has an affiliation. An independent director is free of any relationship with SunTrust or its management that may impair the director’s ability to make independent judgments. Particular attention is paid to whether a director is independent from management and to any credit relationships that may exist with a director or a related interest.

 

Regulation O requires loans made to executive officers and directors to be made on substantially the same terms, including interest rates and collateral, and following credit-underwriting procedures that are no less stringent than those prevailing at the time for comparable transactions by SunTrust with other persons. Such loans also may not involve more than the normal risk of repayment or present other unfavorable features. Additionally, no event of default may have occurred (that is, such loans are not disclosed as non-accrual, past due, restructured, or potential problems). Our Board of Directors must review any credit to a director or his or her related interests that has become criticized in order to determine the impact that such classification has on the director’s independence.

 

In addition, we do not consider independent any director who is also an executive officer of a company to which we have extended credit unless such credit meets the substantive requirements of Regulation O. We also do not consider independent any director who is an executive officer of a company that makes payments to, or receives payments from, SunTrust for property or services in an amount which, in any fiscal year, is greater than 2% of such director’s company’s consolidated gross revenues.

 

The following directors have been determined by the Board to be independent after applying the guidelines set forth above: Messrs. Beall, Correll, Crowe, Farnsworth, Mrs. Frist, Messrs. Garrett, Hughes, Isdell, Ivester, Lanier, Minor, Prince, Dr. Royal, Mrs. Williams and Dr. Wynn. Each member of the Compensation Committee, the Governance and Nominating Committee, and the Audit Committee is independent. There are no family relationships between any director, executive officer, or person nominated or chosen by SunTrust to become a director or executive officer.

 

The Board of Directors conducts a self-assessment annually, which is reviewed by the Governance and Nominating Committee and discussed with the Board. In addition, the Governance and Nominating Committee, the Compensation Committee, the Audit Committee and the Risk Committee also undergo an annual assessment of their performance. The non-management directors of the Board typically meet in executive session at each regularly scheduled meeting, and such meetings are presided over by a Presiding Director who is selected by a majority of independent directors. Mr. Prince currently serves as the Presiding Director.

 

SunTrust has adopted a policy requiring directors who change the job responsibility they held when they were elected to the Board to submit a letter of resignation to the Board. The Board, through the Governance and Nominating Committee, will then make a determination as to whether continued Board membership is appropriate.

 

SunTrust has adopted a Senior Financial Officers Code of Ethical Conduct that applies to SunTrust’s senior financial officers, including its principal executive officer, principal financial officer and controller. SunTrust also has adopted a SunTrust Code of Conduct that applies to all employees, and a Code of Business Conduct and Ethics for members of the Board of Directors. These 3 Codes of Conduct, as well as SunTrust’s Corporate Governance Guidelines, and the charters for the Executive Committee, the Audit Committee, the Governance and Nominating Committee, the Compensation Committee and the Risk Committee can be found by clicking the heading “About SunTrust” on SunTrust’s website at www.suntrust.com and then clicking on “Corporate Governance.” In addition, this information is available in print to any shareholder who requests it by contacting Greg W. Ketron, Director of Investor Relations, at 404-827-6714. The Board intends that non-management directors make decisions on matters of corporate governance. As additional corporate governance standards are adopted, they will be disclosed on an ongoing basis on SunTrust’s website.

 

The Board of Directors has adopted a process to facilitate written communications by shareholders or other interested parties to the Board. Persons wishing to write to the Board of Directors of SunTrust or a specified director, including the Presiding Director, the non-management directors as a group, or a committee of the Board should send correspondence to the Corporate Secretary at SunTrust Banks, Inc., P.O. Box 4418, Mail Code 643, Atlanta, Georgia 30302. All communications so received from shareholders or other interested parties will be forwarded to the members of the Board of Directors or to the applicable director or directors if so designated by such person. Anyone who wishes to communicate with a specific Board member, the non-management directors only, or a committee should send instructions asking that the material be forwarded to the applicable director, group of directors or to the appropriate committee chairman.

 

Decisions regarding the compensation of our executives are made by the Compensation Committee of the Board, which we refer to in this section as the Committee. Specifically, the Committee has strategic and administrative responsibility for a broad range of issues, including ensuring that we compensate key management employees effectively and in a manner consistent with our stated compensation strategy and the requirements of the appropriate regulatory bodies. The Committee also oversees the administration of executive compensation plans, including the design, performance measures, and award opportunities for the executive incentive programs, and certain employee benefits. The Board appoints each member of the Committee and has determined that each is an independent director.

 

The Committee’s policy is to review executive officer compensation at least annually. The Committee makes these reviews to ensure that senior management compensation is consistent with our compensation philosophies, company and personal performance, changes in market practices, changes in an individual’s responsibilities, and inflation. At the Committee’s first regular in-person meeting each year, which it typically holds in February, the Committee makes a more specific review which focuses on performance and awards for the most recently-completed fiscal year.

 

To assist in its efforts to meet the objectives outlined above, the Committee has retained Towers Perrin, a nationally known executive compensation and benefits consulting firm to advise it on a regular basis on the executive compensation and benefit programs. The Committee engaged the consultant to provide general executive

compensation consulting services and to respond to any Committee member’s questions and to management’s need for advice and counsel. In addition, the consultant performs special executive compensation projects and consulting services from time to time as directed by the Committee. The consultant reports to the Committee Chairman. Pursuant to the Committee’s charter, the Committee has the power to hire and fire such consultant and engage other advisors.

 

The Committee has the authority to determine, and approves the individual elements of total compensation paid to the CEO and other executives holding the title of Vice Chair or higher, and the general elements of total compensation for other senior officers. The Committee reviews the performance and compensation of the Executive Chairman of the Board and the CEO, and each of their direct reports, which includes all of the executive officers named in this Proxy Statement. The CEO and members of SunTrust’s Human Resources assist in the reviews of such direct reports. Presently, the consultant’s role is to support such reviews by providing data regarding market practices and making specific recommendations for changes to plan designs and policies consistent with our philosophies and objectives discussed above. The CEO determines the compensation of other senior officers based in part on market data provided by the compensation consultant, and the Committee annually reviews the general elements of such compensation. The Committee also approves the size of the pool of stock-based awards to be granted to other employees, but delegates to the CEO or to the Chief Administrative Officer the authority to make and approve specific awards to employees other than the named executive officers.

 

In determining the amount of named executive officer compensation each year, the Committee reviews competitive market data from the banking industry as a whole and the peer group specifically. It makes specific compensation decisions and grants based on such data, company performance, and individual performance and circumstances. With regard to formula-based incentives, the Committee develops performance targets using management’s internal business plan, industry and market conditions, and other factors.

 

The Board of Director’s Governance and Nominating Committee determines the amount and form of director compensation. Except as noted above, our procedures regarding the determination of director compensation are essentially the same as for executive compensation.

 

Unless the context requires otherwise, in this Executive Compensation section, including the Compensation Discussion and Analysis and the tables which follow it, references to “we,” “us,” “our” or similar terms are to SunTrust Banks, Inc. and our subsidiaries.

 

The Board elects executive officers annually following the Annual Meeting of Shareholders to serve until the meeting of the Board following the next Annual Meeting. The following table sets forth the name of each executive officer as of December 31, 2006 and the principal positions and offices he holds with SunTrust. Unless otherwise indicated, each of these officers has served as an executive officer of SunTrust or a principal subsidiary for at least 5 years.

 

Introduction

 

In this section, we discuss certain aspects of our compensation program as it pertains to our principal executive officer, our principal financial officer, and our 3 other most highly-compensated executive officers in 2006. We refer to these 5 persons throughout as the “named executive officers.” Our discussion focuses on compensation and practices relating to our most recently completed fiscal year.

 

We believe that the performance of each of the named executive officers has the potential to impact both our short-term and long-term profitability. Therefore, we place considerable importance on the design and administration of the executive compensation program.

 

Executive Compensation Philosophy

 

SunTrust seeks to provide an executive compensation package that is driven by our overall financial performance, the increase in shareholder value, the success of the business unit directly impacted by the executive’s performance, and the performance of the individual executive. The main principles of this strategy include the following:

 

 

Objectives of Executive Compensation

 

The objectives of our executive compensation program are to:

 

(1) attract and retain quality executive leadership,

 

(2) enhance the individual executive’s performance,

 

 

(4) increase shareholder value, and

 

(5) improve our overall performance.

 

The Committee strives to meet these objectives while maintaining market competitive pay levels and ensuring that we make efficient use of shares and have predictable expense recognition.

 

Competitive Positioning

 

In determining the amount of named executive officer compensation each year, the Committee reviews competitive market data from the banking industry as a whole and a specific peer group. SunTrust uses a peer group of financial services companies for benchmarking executive compensation practices and levels of base salary, annual incentives, long term incentives, and benefits. We target each component of our executive compensation to peer group median in order to be competitive in the market and because our philosophy is to emphasize performance-based compensation.

 

The Committee selected a representative sample of companies which we believe compete directly with us for executive talent and many of which are of roughly similar size and have roughly similar numbers of employees, product offerings, and geographic scope. For 2006, the peer group consisted of the following companies:

 

 

The Committee attempts to make compensation decisions consistent with the foregoing objectives and considerations including, in particular, market levels of compensation it believes are necessary to attract, retain, and motivate our executive officers. Therefore, the Committee does not take into account an individual’s net worth or the aggregate wealth accumulated or realizable by the individual from past compensation grants.

 

Decisions Regarding Composition of Total Compensation

 

We provide a competitive mix of pay elements that align executive incentives with shareholder value. Our executive compensation program includes both short and long-term compensation, with an emphasis on long-term compensation that is tied to corporate and stock price performance. Long-term compensation is particularly emphasized for our Executive Chairman and CEO. For our named executive officers, we allocate compensation as follows:

 

Base Salaries: ranges from approximately 15% to 30% of total direct compensation

 

Short-term incentives: ranges from approximately 20% to 30% of total direct compensation

 

Long-term incentives: ranges from approximately 40% to 60% of total direct compensation

 

“Total direct compensation” means base salaries plus short-term and long-term incentive compensation. The foregoing percentages are based on the full grant date fair value of annual compensation (calculated in accordance with FAS 123(R)). These amounts differ from the amounts included in the Summary Compensation Table under the columns “Stock Awards,” “Option Awards,” and “Total,” which we calculated in accordance with SEC regulations and which include expenses related to awards for prior years. Please refer to the discussion of FAS 123(R) which precedes the 2006 Summary Compensation Table, below.

 

We emphasize market practices in the design and administration of the executive compensation program. Our philosophy is that variable pay should constitute the majority of total direct compensation. It is for this reason that we choose to use stock options rather than restricted stock as a key component in the long-term pay of our named executive officers as it makes stock price appreciation fundamental in realizing a compensation benefit. Incentive performance measures should promote shareholder return and earnings growth, and the plan design should assure clear linkages between performance measures, participants’ ability to influence such measures and award levels. By emphasizing longer performance measurement periods by using long-term incentives, we align our executives’ interests with our shareholders and create a strong retention tool.

 

Corporate and Individual Performance Measures

 

We use different forms of compensation to reward both the achievement of corporate performance measures, such as the attainment of corporate financial goals, as well as individual performance measures. For example, we

designed our Management Incentive Plan, which we refer to as MIP, to reward annual improvement in net income or net income available to common shareholders, return on equity, and other corporate performance metrics. In 2006, we used only the net income performance measure. We designed our Performance Unit Plan, which we refer to as PUP, to reward improvement in net income and fully-diluted earnings per common share over a 3-year horizon.

 

Executive Compensation Program Overview

 

The 4 primary components of the executive compensation program are:

 

 

A brief description of these 4 components and related programs follows.

 

 

Base salary is designed to provide competitive levels of compensation to executives based upon their experience, duties and scope of responsibility. We pay base salaries because it provides a basic level of compensation and is necessary to recruit and retain executives. An important aspect of base salary is the Committee’s ability to use annual base salary adjustments to reflect an individual’s performance or changed responsibilities.

 

As discussed above, the Committee places a greater emphasis on targeting the total amount of direct compensation to peer practices and emphasizes a mix of compensation weighted towards variable compensation. At lower executive levels, base salaries represent a larger proportion of total compensation but at senior executive levels are progressively replaced with larger variable compensation opportunities.

 

Base salary levels are also important because we generally tie the amount of incentive compensation and retirement benefits to an executive’s base compensation. For example, participation in the MIP is denominated as a percent of one’s base salary. Similarly, an executive’s level of participation in the PUP relates generally to the executive’s salary grade.

 

 

We use the MIP as a short-term incentive to drive achievement of our annual performance goals. The MIP focuses on the achievement of annual financial goals and awards in cash. The MIP is designed to:

 

 

MIP awards are designed to provide competitive levels of compensation to executives based upon their experience, duties and scope of responsibilities. The size of an executive’s MIP award is influenced by these factors, market practices and individual performance. The Committee generally targets annual bonus at market median practice for expected levels of performance, with upside opportunities for superior performance. All of the named executive officers participate in the MIP. Awards earned under the MIP are contingent upon employment with SunTrust through the end of the fiscal year, except for payments made in the event of death, retirement or disability, reduction-in-force or in the event of a change in control.

 

The ultimate amount paid to an executive under MIP is a function of four variables:

 

 

 

We initially denominate MIP awards as a percentage of an executive’s salary. The percentage represents the final MIP payout to the executive assuming MIP goals are achieved at the target level of performance. The actual amount paid under MIP depends upon performance, and in past years could range from 50% to 150% of target. For 2007, MIP payouts may range from 50% to 200% of target depending on performance.

 

Next, the Committee establishes financial and/or non-financial performance measures for each participant. For our named executive officers other than Mr. Rogers, MIP performance measures are based exclusively on corporate performance measures because they hold offices which have a substantial impact on the achievement of those measures. For Mr. Rogers, MIP performance measures for 2006 were a blend of 60% corporate performance and 40% individual performance because he had personal responsibility for the results of a particular line of business; in contrast, the other named executive officers had responsibility for company-wide functions. In 2007, we expect that MIP performance measures will be based 100% on corporate performance because Mr. Rogers’ responsibilities were recently expanded and because of a change in philosophy to emphasize teamwork and corporate results.

 

With respect to the corporate performance measures, for 2006, we based the MIP corporate performance measure exclusively on consolidated net income. For 2007, the MIP corporate performance measure will be weighted 75% on consolidated net income available to common shareholders and 25% on return on equity. The performance goals for 2008 and later years may be expanded to include other financial measures as selected by the Committee.

 

The Committee sets these target performance measures in February of each year based largely on management’s confidential business plan and budget for the coming year, which typically includes planned revenue growth, cost reductions, and profit improvement. The Committee also sets threshold and maximum performance benchmarks. Maximum award targets reflect very ambitious goals which can only be attained when business results are exceptional and which have never been met, thus justifying the higher award payments. Similarly, minimum award or threshold performance targets are set sufficiently high that once in the past 5 years we failed to reach the minimum performance target, resulting in no payments under MIP. Target performance has been set such that actual performance as determined by the Committee exceeded the target in 3 years and fell short of the target in 2 years. For 2006, the Committee determined that we achieved the MIP performance measure at approximately [     ]% of target.

 

Actual payouts under MIP depend on the level at which the performance measures are achieved. Achievement at target for each performance measure results in a final award payment equal to the target incentive award payment. Actual performance at only the threshold (minimum) performance level results in a final award payment equal to 50% of the target award amount, and performance below the threshold performance level results in no final award payment. Actual performance above the target performance benchmark produces an award greater than the target award, up to 150% of the target award in 2006 and 200% in future years. Straight-line interpolation is used to calculate payout values between minimum, target, and maximum levels.

 

Finally, the Committee assesses actual performance relative to pre-set goals and, in doing so, determines the amount of any final award payment. In determining final awards and in evaluating personal performance, the Committee considers adjusting GAAP net income and other corporate performance measures for unplanned, unusual or non-recurring items of gain or expense. In 2006, the Committee exercised its discretion by adding to reported net income the amount of preferred stock dividends paid by the Company (because MIP is based on net income and because the dividends on preferred stock reflected our capital restructuring which we completed in the fourth quarter of 2006, the benefit of which was reflected in earnings per common share but not in net income). We applied this adjustment equally to all participants.

 

 

We emphasize long-term variable compensation at the senior executive levels over short term variable compensation because of our desire to reward effective long-term management decision making. Long-term

incentives are designed to focus attention on long-range objectives and future returns to shareholders, and are presently delivered to the named executive officers through the Performance Unit Plan (PUP) and time-vested stock options. We target roughly equal awards under PUP and stock options in order to balance the 3-year net income and earnings per common share measures under PUP with the long-term stock price measure inherent in stock option grants.

 

Performance Unit Plan

 

The purpose of the PUP is to promote the long-term interests of SunTrust and our shareholders, and to motivate, retain and reward those executives who contribute significantly to our long-term strategy development and financial performance. PUP payouts are based entirely on corporate performance measures. We make PUP awards in order to incent our executives to achieve intermediate-term net income and earnings per common share growth. We also use the PUP to provide part of our long-term compensation because PUP pays out in cash and thereby limits dilution to our common shareholders.

 

PUP awards are designed to provide competitive levels of compensation to executives based upon their experience, duties and scope of responsibilities. The number of PUP units awarded to an individual is influenced by these factors as well as market practices and individual performance.

 

Each PUP unit has a target value of $30.00. The final value of each unit is determined at the conclusion of a 3-year performance cycle. Two measures of corporate performance are established at the beginning of each performance cycle, and each corresponds to minimum, target, and maximum unit values at given levels of performance. The performance measures for the 2006-2008 performance cycle are: (1) 3-year cumulative consolidated net income available to common shareholders, and (2) 3-year cumulative earnings per common share. We use both net income available to common shareholders and fully-diluted EPS to ensure that named executive officers are not penalized for corporate strategies designed to improve EPS.

 

The Committee sets target performance measures based in part upon management’s confidential business plan and budget. For the 2006-2008 cycle, the Committee set the 3-year consolidated net income target and the 3-year consolidated earnings per common share at target levels deemed appropriate based on industry expectation, market opportunities, and other factors the Committee believes are relevant. Maximum award targets reflect very ambitious goals which can only be attained when business results are exceptional and which have never been met, thus justifying the higher award payments. Similarly, minimum award or threshold performance targets are set sufficiently high that twice in the past 5 years we failed to reach the minimum performance target, resulting in no payments under PUP. Target performance targets have been set such that actual performance as determined by the Committee exceeded the target only once and fell short 3 times. For the 2004-2006 performance cycle, the Committee determined that we achieved the PUP performance targets at approximately 104.3% of target.

 

At the end of each 3-year performance cycle, the payout value is determined using the higher of actual net income or earnings per common share relative to the minimum, target, and maximum performance objectives established for the 3-year performance cycle. Straight-line interpolation is used to calculate payout values between minimum, target, and maximum levels. Achievement of the performance targets results in a final award payment corresponding to the target incentive award payment, depending on the level of achievement. Actual performance at the threshold performance level results in a final award payment equal to 50% of the target award amount, and actual performance below the threshold results in no final award payment. Actual performance above the target performance benchmark produces an award greater than the target award. Maximum performance targets, which would result in a payout of 200% of the target award, reflect very ambitious goals, which can only be attained when business results are exceptional, thus justifying the higher award payments. Straight-line interpolation is used to calculate payout values between minimum, target, and maximum levels. The Committee assesses actual performance relative to the performance targets, and thereby determines the amount of any final award payment and, in doing so, has the discretion to adjust actual results. However, because PUP performance cycles are longer than under MIP, absent extraordinary events, such as our merger with NCF, the Committee typically does not exercise this discretion and for 2006 made no adjustments to the 2004-2006 results.

 

Restricted Stock

 

We make restricted stock awards to named executive officers only in special circumstances, such as the hiring of a new executive. We made no grants of restricted stock to our named executive officers in 2006, but some grants made to them in prior years remain outstanding and these are reflected in the tables below.

 

Stock Option Awards

 

In addition to the PUP, we make annual stock option awards to senior executives. These awards are used to: (1) create a fundamental, long-term linkage between the interests of executives and shareholders, and (2) recruit and retain executive talent.

 

Stock options represent approximately half of our named executive officers’ long-term incentive compensation. Stock options generally have a 10-year term and cliff vest 3 years after the date of grant. SunTrust options have an exercise price equal to the closing price of our stock on the date of grant. Accordingly, the actual value an executive will realize is tied to future stock price appreciation and is therefore aligned with corporate performance and shareholder stock price returns. Stock option grants are made under the 2004 Stock Plan, which is administered by the Committee. We grant only nonqualified stock options.

 

Please refer to the section below, “Other Guidelines and Procedures Affecting Executive Compensation” for additional information regarding our practices when granting stock options.

 

 

 

We offer a qualified 401(k) Plan and a nonqualified 401(k) Excess Plan to provide tax-advantaged savings vehicles. We make matching contributions to the 401(k) Plan and a 401(k) Excess Plan to encourage employees to save money for their retirement. These plans, and our contributions to them, enhance the range of benefits we offer to executives and enhance our ability to attract and retain employees.

 

Under the terms of the qualified 401(k) Plan, employees may defer from 1% to 20% of their eligible pay, and we match the first 3% on a dollar-for-dollar basis, and 50% of the next 2% for a total match of 4% of eligible pay for each participant who defers 5% or more of his or her eligible pay. We deposit our matching contribution into the 401(k) Plan’s common stock fund and, as of January, 2007, all matching contributions are immediately eligible for diversification by participants.

 

SunTrust also maintains a nonqualified 401(k) Excess Plan to provide benefits that would have otherwise been provided under the qualified 401(k) Plan to certain participants but for the imposition of certain maximum statutory limits imposed on qualified plan benefits (for example, annual limits on eligible pay and contributions). Company employees, including members of senior management, who reach the maximum limits in the qualified 401(k) Plan are generally eligible for the 401(k) Excess Plan. Because the 401(k) Excess Plan is unfunded, all participants’ deferrals plus our matching contributions are accounted for in phantom units. Participants’ investment choices in the 401(k) Excess Plan mirror many of the investment options allowed in the 401(k) Plan, except that participants may not choose any investment vehicle tied to the value of SunTrust common stock or to a bank collective fund. The 401(k) Excess Plan also contains account balances, which we refer to as “frozen accounts,” from 2 similar plans that were frozen as to future contributions on June 30, 1999. We track investments for some of the frozen accounts and our matching contributions in phantom shares of SunTrust common stock.

 

Our matching contributions to both plans are determined in part by the level of participation by the executive. Our matching contributions are capped at specific amounts (except in the 401(k) Excess Plan, where Messrs. Humann and Wells and a few other participants, who are not named executive officers, are not subject to the matching limit because they have protected rights from prior, similar plans). We established the maximum limits on our matching contributions by reference to market and peer practices.

 

 

Perquisites and other benefits represent a small part of our overall compensation package, and are offered only after consideration of business need. We annually review the perquisites and other personal benefits that we provide to senior management. The primary perquisites are financial planning, club memberships, and cash payments to cover the tax liability to the executives for the imputed value of such benefits. We believe that good financial planning by experts reduces the amount of time and attention that senior management must spend on that topic and maximizes the net financial reward to the employee of compensation received from SunTrust. Such planning also helps ensure that the objectives of our compensation programs are met and not frustrated by unexpected tax or other consequences. We sponsor membership in golf or social clubs for certain senior executives who have responsibility for the entertainment of clients and prospective clients. Finally, certain tax, accounting, and other regulations often subject our executives to taxation on the receipt of certain benefits irrespective of the value such benefit conferred to the executive. In these situations, we typically provide a tax-gross up payment to the executive to reimburse the executive for approximate amounts of additional tax liability the executive will need to pay as a result of receiving such benefits.

 

 

Retirement Plans.  We maintain both qualified and nonqualified defined benefit retirement plans that are designed to work together to provide target retirement pay to our top-level executives. We pay the entire cost of benefits under these plans, which are in addition to the defined contribution type plans (that is, the 401(k) and 401(k) Excess Plans described above and the Deferred Compensation Plan) that encourage participants to set aside part of their current earnings to provide for their retirement.

 

The SunTrust Retirement Plan is a tax-qualified plan, available to almost all employees. It is designed to provide monthly payments for a participant’s lifetime beginning at age 65, although benefits may begin as early as age 55 with 5 years of service. The NCF Retirement Plan is also a tax-qualified plan, which SunTrust acquired with the merger with National Commerce Financial in 2004. This plan is a frozen plan and of the named executive officers, only Mr. Reed has a benefit payable from this plan, based on his service prior to 2005. In addition to the SunTrust Retirement Plan, we also maintain 4 nonqualified defined benefit type plans — the ERISA Excess Plan, the Supplemental Executive Retirement Plan (“SERP”), a frozen Crestar SERP, and a frozen NCF Supplemental Executive Retirement Plan (“NCF SERP”). These nonqualified plans are designed to work together with the SunTrust Retirement Plan to provide an overall targeted level of benefits. The targeted level is set by the SERP.

 

We provide pension benefits in order to attract and retain executives. The amount payable under such retirement plans to each named executive officer is determined by the plan’s benefit formula, which we describe in the section below “Pension Benefits Table.” The amount of benefits varies based upon the plan, the executive’s years of service with us, and the executive’s compensation. We generally target total compensation (including retirement benefits) at peer median.

 

Retirement benefits for 2 of our named executive officers (Messrs. Humann and Wells) comprise a significant percentage of their total compensation. The majority of benefits come from their participation in the Tier I SERP, previously closed to new participants, which includes in its calculation of earnings, base salary and certain incentive compensation, such as payouts under the MIP and the PUP. Also, in 2004, we established a cap on the PUP payouts that can be used in the earnings under this plan. Another reason that retirement benefits comprise a significant percentage of compensation for these 2 named executive officers is because both are close to retirement age and, therefore, the discount for early retirement has less significance in the actuarial valuation of the net present value of their benefits.

 

Change in Control Agreements.  We have entered into Change in Control Agreements (“CIC Agreements”) with members of senior management, including each of our named executive officers. Except for these CIC Agreements, and our broad-based severance policy, none of our named executive officers has an employment agreement which requires us to pay their salary for any period of time. We entered into the CIC Agreements because the banking industry has been consolidating for a number of years and we do not want our executives distracted by a rumored or actual change in control. Further, if a change in control should occur, we want our executives to be focused on the business of the organization and the interests of shareholders. In addition, we think it is important

that our executives can react neutrally to a potential change in control and not be influenced by personal financial concerns. We believe our CIC Agreements are consistent with market practice and assist us in retaining our executive talent. We set the level of benefits at either 2 times or 3 times lump sum formulas to remain competitive with the banking industry as a whole and specifically with our peer group. Finally, all payments under the CIC Agreements are conditioned on an executive agreeing to non-compete, non-solicitation and non-disparagement provisions.

 

Upon a change in control followed by a termination of the executive’s employment by the Company without “cause” or by the executive for “good reason,” the CIC Agreements require us to pay or provide the following to the executive:

 

 

The CIC Agreements provide these same protections to our executives who are terminated without “cause” or who terminate for “good reason” in the period between the time our shareholders approve a change in control and the date a change in control is completed.

 

We believe that CIC Agreements should compensate executives who are displaced by a change in control and not serve as an incentive to increase an executive’s personal wealth. Therefore, our CIC Agreements require that there be both a change in control and an involuntary termination without “cause” or a voluntary termination for “good reason,” which is often referred to as a “double-trigger.” The double-trigger ensures that we will become obligated to make payments under the CIC Agreements only if the executive is actually or constructively discharged as a result of the change in control. Our stock option agreements and other long term incentive compensation arrangements (other than performance stock grants made prior to 1998) also require the double trigger in order for accelerated vesting to occur in connection with a change in control.

 

Recent Changes in the Executive Compensation Program

 

In 2005, the Committee’s compensation consultant performed a comprehensive review of all executive compensation programs and policies and recommended specific program improvements or changes to ensure that our programs were competitive and effective. Results of this study indicated that pay levels and practices were generally competitive and consistent with prevailing industry practices. In 2006, the compensation consultant conducted a limited review of the short and long-term incentive programs. Changes we will implement in 2007 include:

 

 

 

The Committee reviews the general elements and amounts of each named executive officer’s compensation annually and makes adjustments to ensure that it is consistent with our compensation philosophies, company and personal performance, changes in market practices, changes in an individual’s responsibilities, and inflation.

 

Other Guidelines and Procedures Affecting Executive Compensation

 

Stock-Based Compensation — Procedures Regarding Committee Approval and Delegation of Authority.  The Committee approves all grants of stock-based compensation to the Executive Chairman and the CEO, and persons reporting to either the Executive Chairman or the CEO. (In previous years, before we had an Executive Chairman, the Committee would approve all grants of equity-based compensation to the CEO and COO, and all executives reporting to either the CEO or COO.)

 

The Committee also approves the size of the pool of stock-based awards to be granted to other employees, but delegates to the CEO or to the Chief Administrative Officer the authority to make and approve specific awards to employees other than those who report directly to the CEO. While the Committee delegates specific grant-making authority to the CEO or CAO (except with respect to the senior officers described above), the Committee reviews such grants and oversees the administration of the program.

 

Stock-Based Compensation — Procedures Regarding Timing and Pricing of Awards.  Our policy is to make grants of equity-based compensation only at current market prices. We set the exercise price of stock options at the closing stock price on the date of grant, and do not grant “in-the-money” options or options with exercise prices below market value on the date of grant. It is also our policy to make grants only on the dates of regularly scheduled meetings of the full Board of Directors. Further, it is our policy to make the majority of such grants on the date of the February meeting of our Board of Directors (although we make a small percentage of grants at other times throughout the year on the date of regularly-scheduled meetings of the full Board of Directors in connection with exceptional circumstances, such as the hiring or promotion of an executive officer, special retention circumstances, or merger and acquisition activity).

 

We try to make stock award and stock option grants at times when they will not be influenced by scheduled releases of information. We do not otherwise time or plan the release of material, non-public information for the purpose of affecting the value of executive compensation. Similarly, we do not set the grant date of stock options to new executives in coordination with the release of material non-public information and, instead, these grants, like all other grants, have grant dates corresponding to the date of the February Board meeting or the next pre-selected off-cycle grant date.

 

We chose the February meeting of our Board of Directors because it is the first meeting of the Board of Directors after financial results for the completed fiscal year have been publicly announced, and because it allows time for performance reviews following the determination of corporate financial performance for the previous fiscal year. This allows us to make grants at a time when our financial results have already become public, and when there is little potential for abuse of material non-public information in connection with stock or option grants. We believe we minimize the influence of our disclosures of non-public information on the exercise price of these long-term incentives by selecting dates well in advance and which fall several days or weeks after we report our financial results, and by setting the vesting period at 1 year or longer. We follow the same procedures regarding the timing of grants to our executive officers as we do for all other participants.

 

Role of Executive Officers in Determining Executive Compensation.  The Committee oversees the administration of executive compensation plans, including the design, performance measures, and award opportunities for the executive incentive programs, and certain employee benefits. The Committee has the authority to determine, and approves all compensation and awards, to the CEO and other executives holding the title of Vice Chairman or higher. The Committee reviews the performance and compensation of the Executive Chairman and the CEO, and

each of their direct reports, which includes all of the executive officers named in this Proxy Statement. The CEO and members of SunTrust’s Human Resources assist in such reviews. The CEO determines the compensation of other senior officers based in part on market data provided by the compensation consultant, and the Committee annually reviews the general elements of such compensation. The Committee also approves the size of the pool of stock-based awards to be granted to other employees, but delegates to the CEO or to the Chief Administrative Officer the authority to make and approve specific awards to employees other than the named executive officers. Executive officers do not otherwise determine or make recommendations regarding the amount or form of executive or director compensation.

 

Adjustments to Incentive Compensation as a Result of Financial Statement Restatements.  The Committee’s practice is to consider adjusting future awards or recovering past awards in the event of a material restatement of our financial results. If, in the exercise of its business judgment, the Committee believes that it is in our best interests to do so, we will seek recovery or cancellation of any bonus or incentive payments made to an executive on the basis of having met or exceeded performance targets during a period of fraudulent activity or a material misstatement of financial results where the Committee determines that such recovery or cancellation is appropriate due to intentional misconduct by the executive officer that resulted in such performance targets being achieved which would not have been achieved absent such misconduct.

 

Share Ownership and Share Retention Guidelines.  One of our priorities is to encourage directors and executive officers to be significant shareholders. We believe that significant share ownership by directors and executives is a contributing factor to superior long-term corporate performance. Although our directors and executive officers already have a significant equity stake in SunTrust (as reflected in the beneficial ownership information contained in this Proxy Statement), we have adopted a share ownership policy for directors and a share retention policy for upper level management.

 

We require all executive officers who are members of our management committee (which includes all of the executive officers named in this Proxy Statement) to retain, for at least 3 years, all net shares acquired through SunTrust-sponsored incentive plans. We do not count options, unvested restricted stock, unvested performance shares or any shares which are used as collateral (including shares held in a margin account) towards satisfying this requirement.

 

Certain other executive officers are subject to similar, but lower, share retention requirements which require them to retain specified percentages of the net shares acquired through SunTrust-sponsored incentive plans. We allow these other officers to diversify their portfolios when they reach age 55.

 

We require all executives subject to the policy to certify annually to us that they have complied with the policy.

 

We require non-management members of our Board of Directors to own at least 4,000 shares of SunTrust common stock. We count restricted stock, restricted stock units, and deferred or phantom stock towards this requirement. We allow members of the Board of Directors 5 years in which to meet this requirement, measured from the later of the date we adopted this policy (5 years from April 18, 2006) or 5 years from their election to the Board.

 

Tax Considerations

 

It has been and continues to be the Committee’s intent that all incentive payments be deductible unless maintaining such deductibility would undermine our ability to meet our primary compensation objectives or is otherwise not in our best interest. At this time, essentially all compensation we paid to the named executive officers is deductible under Section 162(m) of the Internal Revenue Code. We also take into account the tax effects of various forms of compensation and the potential for excise taxes to be imposed on our executive officers which might have the effect of frustrating the purpose(s) of such compensation. There are various provisions of the Internal Revenue Code which we consider.

 

Section 162(m).  Section 162(m) of the Internal Revenue Code of 1986, as amended, provides that compensation in excess of $1 million paid for any year to a corporation’s chief executive officer and the 4 other highest paid executive officers at the end of such year, which executives we refer to as covered employees, will not be deductible for federal income tax purposes unless: (1) the compensation qualifies as “performance-based compensation,” and (2) we advised our shareholders of, and our shareholders have approved, the material terms of the

performance goals under which we pay such compensation and, under certain conditions, such shareholders have re-approved the material terms of the performance goals within the last 5 years. At the 2005 Annual meeting, our shareholders approved the material terms of the performance goals under which compensation is paid under our MIP and PUP.

 

Sections 280G and 4999.  We provide our named executive officers with change in control agreements. Our change in control agreements provide for tax protection in the form of a gross up payment to reimburse the executive for any excise tax under Internal Revenue Code Section 4999 as well as any additional income and employment taxes resulting from such reimbursement. Code Section 4999 imposes a 20% non-deductible excise tax on the recipient of an “excess parachute payment” and Code Section 280G disallows the tax deduction to the payor of any amount of an excess parachute payment that is contingent on a change in control. A payment as a result of a change in control must exceed 3 times the executive’s base amount in order to be considered an excess parachute payment, and then the excise tax is imposed on the parachute payments that exceed the executive’s base amount. The intent of the tax gross-up is to provide a benefit without a tax penalty to our executives who are displaced in the event of a change in control. We believe the provision of tax protection for excess parachute payments for our executive officers is consistent with market practice, is a valuable executive talent retention incentive, and is consistent with the objectives of our overall executive compensation program.

 

Section 409A.  Amounts deferred under our nonqualified deferred compensation programs after December 31, 2004 are subject to Internal Revenue Code Section 409A, which governs when elections for deferrals of compensation may be made, the form and timing permitted for payment of such deferred amounts, and the ability to change the form and timing of payments initially established. Section 409A imposes sanctions for failure to comply, including accelerated income inclusion, a 20% penalty and an interest penalty. We currently operate our plans in good faith compliance with Section 409A as permitted by the proposed regulations issued by the Internal Revenue Service. When final Section 409A regulations are issued, we will amend our plans as necessary to fully comply with Code Section 409A requirements.

 

Summary

 

In summary, we believe this mix of salary, potentially significant variable cash incentives for both short-term and long-term performance, and the potential for equity ownership in SunTrust motivates our management team to produce strong returns for shareholders. We further believe this program strikes an appropriate balance between the interests and needs of SunTrust in operating our business and appropriate employee rewards based on shareholder value creation.

 

The Compensation Committee reviewed and discussed the Compensation Discussion and Analysis included in this Proxy Statement with management. Based on such review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement for filing with the Securities and Exchange Commission.

 

Submitted by the Compensation Committee of SunTrust’s Board of Directors.

 

Larry L. Prince, Chairman
Alston D. Correll
David H. Hughes
G. Gilmer Minor, III

 

Overview.  The following sections provide a summary of cash and certain other amounts we paid for the year ended December 31, 2006 to the named executive officers. Except where noted, the information in the Summary Compensation Table generally pertains to compensation to the named executive officers for the year ended

December 31, 2006. The compensation we disclose below is presented in accordance with SEC regulations. According to those regulations we are required in some cases to include:

 

 

Therefore, we encourage you to read the following tables closely. The narratives preceding the tables and the footnotes accompanying each table are important parts of each table. Also, we encourage you to read this section in conjunction with the Compensation Discussion and Analysis, above.

 

The following table provides information concerning the compensation of the named executive officers for our most recently completed fiscal year.

 

In the column “salary”, we disclose the amount of base salary paid to the named executive officer during the fiscal year. In the columns “Stock Awards” and “Option Awards,” SEC regulations require us to disclose the award of stock or options measured in dollars and calculated in accordance with FAS 123(R). For restricted stock, the FAS 123(R) fair value per share is equal to the closing price of our stock on the date of grant. For stock options, the FAS 123(R)fair value per share is based on certain assumptions which we explain in footnote 16 to our financial statements which are included in our annual report on Form 10-K. We disclose such expense ratably over the vesting period but without reduction for assumed forfeitures (as we do for financial reporting purposes). The amounts shown in the 2006 Summary Compensation Table also include a ratable portion of each grant we made in prior years to the extent the vesting period fell in 2006 (except where generally accepted accounting principles (“GAAP”) required us to recognize the full amount in a prior year, as is the case when a grant is made to a retirement-eligible executive and under the terms of such award the executive is permitted to retain all or part of such award upon retirement without fulfilling the vesting period). Please also refer to the second table in this Proxy Statement, “Grants of Plan-Based Awards.”

 

We made no grants of restricted stock to the named executive officers in 2006. For certain executives, this column includes a portion of the expense attributable to restricted stock grants made in prior years and performance stock grants made during the years 1991-1998. Restricted stock awards typically vest 3 years from the date of grant. Awards are conditioned on the participant’s continued employment with SunTrust, but may have additional restrictions, including performance conditions. Restricted stock allows the participant to vote and receive dividends prior to vesting.

 

In the column “Non-Equity Incentive Plan Compensation,” we disclose the dollar value of all earnings for services performed during the fiscal year (and during the prior 2 years with respect to PUP) pursuant to awards under non-equity incentive plans, including our MIP and PUP. Whether an award is included with respect to any particular fiscal year depends on whether the relevant performance measure was satisfied during the fiscal year. For

example, our MIP awards are annual awards and the payments under those awards are made based upon the achievement of financial results measured as of December 31 of each fiscal year; accordingly, the amount we report for MIP corresponds to the fiscal year for which the award was earned even though such payment was made after the end of such fiscal year. Payments under our PUP awards are made based upon the achievement of financial results over a 3-year period; accordingly, we include payments under PUP for the fiscal year which includes the last day of the 3-year performance period for which the award was earned, even though such payment was made after the end of such fiscal year. The table below reflects PUP payouts for the 2004-2006 performance cycle which ended on December 31, 2006 which correspond to grants made in 2004.

 

In the column “Change in pension value and nonqualified deferred compensation earnings,” we disclose the sum of the dollar value of (1) the aggregate change in the actuarial present value of the named executive officer’s accumulated benefit under all defined benefit and actuarial pension plans (including supplemental plans) in 2006; and (2) any above-market or preferential earnings on nonqualified deferred compensation, including on nonqualified defined contribution plans. Dividends on restricted stock are equal to the dividends paid to all other holders of our common stock and therefore are not considered “above-market” under SEC regulations. Therefore, any such dividends are not in the Summary Compensation Table but rather in the “Aggregate Earnings in Last FY” column of the Nonqualified Deferred Compensation Table, below.

 

Retirement benefits for 2 of our named executive officers (Messrs. Humann and Wells) comprise a significant percentage of their total compensation. The majority of such benefit comes from their participation in the Tier I SERP, which includes in its calculation of earnings, base salary and certain incentive compensation such as payouts under the MIP and the PUP. We previously closed that plan to new participants, and today only 2 of our named executive officers participate in the Tier I SERP. Also, in 2004, we established a cap on the contribution of PUP payouts to accruals under this plan. Another reason that retirement benefits comprise a significant percentage of compensation for these 2 named executive officers is because both are close to retirement age and, therefore, the discount for early retirement has less significance in the actuarial valuation of the net present value of their benefits.

 

In the column “All other compensation,” we disclose the sum of the dollar value of:

 

 

In accordance with SEC regulations, we report use of corporate aircraft by our executive officers as a perquisite or other personal benefit unless it is “integrally and directly related” to the performance of the executive’s duties. SEC rules require us to report this and other perquisites at our aggregate incremental cost.

 

2006 SUMMARY COMPENSATION TABLE

 

 

 

 

 

 

 

In this table, we provide information concerning each grant of an award made to a named executive officer in the most recently completed fiscal year. This includes PUP, MIP, and stock option awards under the SunTrust Banks, Inc. 2004 Stock Plan, each of which are discussed in greater detail in this Proxy Statement under the caption, “Compensation Discussion and Analysis.” The threshold, target and maximum columns reflect the range of estimated payouts under the MIP and PUP. In the 7^th and 8^th columns, we report the number of shares of common stock underlying options granted in the fiscal year and corresponding per-share exercise prices. In all cases, the exercise price was equal to the closing market price of our common stock on the date of grant. Finally, in the 9th column, we report the aggregate FAS 123(R) value of all awards made in 2006; in contrast to how we present amounts in the Summary Compensation Table, we report such figures here without apportioning such amount over the service or vesting period.

 

 

 

The following table provides information concerning exercises of stock options and similar instruments, and vesting of stock, including restricted stock and similar instruments, during the most recently completed fiscal year for each of the named executive officers on an aggregated basis. In some cases, this includes the vesting of performance stock which vested in the most recently completed fiscal year but which was granted as long as 15 years ago. The table reports the number of securities for which the options were exercised; the aggregate dollar value realized upon exercise of options; the number of shares of stock that have vested; and the aggregate dollar value realized upon vesting of stock.

 

 

 

 

The following table provides information concerning unexercised options, stock that has not vested, and equity incentive plan awards for each named executive officer outstanding as of the end of our most recently completed fiscal year. Each outstanding award is represented by a separate row which indicates the number of securities underlying the award, including awards that have been transferred other than for value (if any).

 

For option awards, the table discloses the exercise price and the expiration date. For stock awards, the table provides the total number of shares of stock that have not vested and the aggregate market value of shares of stock that have not vested.

 

We computed the market value of stock awards by multiplying the closing market price of our stock at the end of the most recently completed fiscal year by the number of shares or units of stock or the amount of equity incentive plan awards, respectively.

 

Performance Stock.  In prior years, we granted performance stock to provide executives greater ownership in SunTrust and to align their interests with those of the shareholders. We last granted performance stock in 1998 and no longer grant performance stock to senior executives. In this table, we report only prior performance stock grants

which have not yet vested. We report vested or pre-vested performance stock in the Deferred Compensation Table because by its terms, the executive cannot forfeit vested or pre-vested performance stock.

 

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END 2006

 

 

 

 

The following table provides information with respect to each plan that provides for payments or other benefits at, following, or in connection with retirement. This includes tax-qualified defined benefit plans and supplemental executive retirement plans, but does not include defined contribution plans (whether tax qualified or not).

 

Values reflect the actuarial present value of the named executive officer’s accumulated benefit under the plan, computed as of December 31, 2006. In making such calculation, we assumed that the retirement age will be the normal retirement age as defined in the plan, or if not so defined, the earliest time at which a participant may retire under the plan without any benefit reduction due to age.

 

Our defined benefit plans are designed to work together so that, on an aggregated basis with Social Security benefits, they will provide targeted levels of benefits to our named executive officers. For Messrs. Humann and Wells, the targeted amount is 60% of average earnings (base pay plus MIP and PUP computed as the highest 3 out of the last 10 years). The targeted amount for the other named executives is 2% of average earnings (base pay plus MIP) computed as the highest 3 out of the last 10 years, times years of service up to 25 years, to produce a targeted benefit of 50% with 25 years of service.

 

As a general rule, we do not grant extra years of service under our qualified or nonqualified plans. Exceptions may occur, however, in the case of mergers and acquisitions. We usually credit acquired employees for their prior service with their predecessor employer for purposes of vesting and eligibility to participate in our plans. We do not, however, normally credit prior service for purposes of benefit accrual, especially for pension purposes and retiree health, except where a merged or acquired company maintained a plan substantially similar to a SunTrust plan. In that case, we may grant prior service credit with an offset of the other plan benefit or, otherwise, we may apportion

service to each benefit formula under which it is earned. Pursuant to our CIC Agreements, we provide additional age and service credit to our executives upon a change in control followed by the termination of the executive without cause or by the executive for good reason. Age and service in nonqualified and welfare plans are increased by the length of the executive’s protection period, which is either 2 or 3 years following the change in control date. In addition, our SERP provides that upon a participant’s termination of employment for good reason or without cause following our change in control, the additional age and service recognized by any individual agreement will be used in calculating the SERP benefit or, if greater, for a SERP Tier 1 participant, the lesser of 36 full calendar months or the number of months between the date of termination and age 65. In addition, automatic vesting occurs for the Tier 2 SERP participants who are not yet vested.

 

SunTrust Retirement Plan

 

The SunTrust Retirement Plan is a defined benefit pension plan. It is a tax-qualified, broad-based plan generally available to all regular, full-time employees (with some exceptions). Participation is automatic and begins on January 1 or July 1 after an eligible employee completes 1 year of service.

 

The Retirement Plan formula calculates the benefit in the form of a single life annuity beginning at age 65 payable for the participant’s lifetime. The benefit formula uses final average pay (the highest 5 out of 10 years of base pay) times years of service multiplied by specific percentages as shown in the formulas that follow.

 

Benefit Formulas:  The Retirement Plan has 2 primary benefit formulas. First, for a participant first employed on or after 7/1/1990, the following formula applies: 1.2% times final average base pay times years of service credited before 2/1/2003, plus 1.0% times final average base pay times years of service credited after 1/31/2003. Second, for a participant first employed before 7/1/1990, the following formula applies: accrued benefit under the prior benefit formula as of 12/31/1988 plus 0.4% times average base pay for 1988 times years of service prior to 1989 (maximum 30 years) plus 1.5% times final average base pay times years of service after 12/31/88 and before 2/1/2003 plus 1.25% times final average pay times years of service after 1/31/2003. Other formulas may be applicable due to mergers and acquisitions.

 

The Retirement Plan benefit becomes non-forfeitable (i.e., 100% vested) when the participant completes 5 years of service. Normal retirement age is age 65 or, if later, completion of 5 years of service. The normal form of benefit is a single life annuity for an unmarried participant and a joint and 50% survivor annuity for a married participant. A participant may elect other annuity forms of payment, including a joint and 100% survivor annuity, and, with the spouse’s written consent, if applicable, a 10-year or 20-year certain and continuous annuity, a Social Security leveling option, or if a participant began participation before 1988, a single lump sum payment. The single life annuity provides the largest monthly payment to the participant, although payments under this option stop at the participant’s death. The lump sum amount is calculated as the present value of the age 65 single life annuity, reduced for early commencement, based on the Plan’s 1994 Group Annuity Reserving (Unisex Version) mortality table and interest rate of 4.85%.

 

Messrs. Humann and Wells are eligible for early retirement under the SunTrust Retirement Plan based on their years of service and age. Early retirement benefits may begin as soon as the first day of the month on or after a participant attains age 55 and completes 5 years of vesting service. Payments made before age 65 (or, age 60 if hired prior to 7/1/1990) are reduced by 5% per year to account for the longer period over which payments are expected to be made.

 

Mr. Wells’ benefit under the SunTrust Retirement Plan is calculated under a different benefit formula because he was a participant in the Crestar Retirement Plan when SunTrust acquired Crestar Financial Corporation in December, 1998. The Crestar Retirement Plan was merged into the SunTrust Retirement Plan at the beginning of 2000 and Mr. Wells’ benefit as a Rule of 60 grandfathered participant under the SunTrust Retirement Plan is calculated as the larger of the amounts calculated under the following 2 formulas:

 

(1) Formula 1 — All Crestar formula: Crestar plan formula with Crestar Plan’s early retirement factors (6% reduction for each year of commencement before age 65 (or, age 60 if age plus service is greater than or equal to 85) for the 1.15% and .5% components of the formula, and based on an IRS table for the .65% component of the formula) and pay definition (generally, W-2 compensation with add-backs for deferrals and

certain pre-tax contributions): 1.15% times average pay times years of service up to 25 plus .5% times average pay times years of service over 25 plus .65% times average pay exceeding covered pay (in IRS tables) times years of service up to 25. The result is multiplied by the ratio of service at retirement to expected service at Normal Retirement. “Average pay” is the average of the participant’s highest pay as defined above in a 60 consecutive month period.

 

(2) Formula 2 — Crestar plus SunTrust formulas: Crestar plan formula (as stated above in (1) applied through 12/31/1999) plus a past service booster (0.4% times final average pay as defined in (1) above at 12/31/1999 times years of service at 12/31/1999 up to 30), plus SunTrust benefit formula for employees hired on or after 7/1/1990 (see above).

 

Mr. Wells’ benefit payment options are the same as those provided under the SunTrust Retirement Plan except that he is not eligible for a lump sum payment.

 

Mr. Reed is not eligible to earn a benefit under the SunTrust Retirement Plan because he has already reached his maximum benefit level, which is the 2001 IRC Section 415 benefit limit, set forth in the NCF Retirement Plan and continued in the SunTrust Retirement Plan. Therefore, his benefit under the SunTrust Retirement Plan is reflected as zero in the Pension Table. Mr. Reed still retains his vested accrued benefit under the National Commerce Financial Corporation Retirement Plan (the “NCF Plan”), a pension equity plan that SunTrust currently maintains as a separate plan. The NCF Plan was “frozen” (i.e., no additional benefit accruals) at December 31, 2004 and will provide Mr. Reed a lump sum payment of $1,220,477 at age 65, assuming that his compensation does not substantially change. Mr. Reed’s benefit in the NCF Plan was grandfathered in 1996 when the Plan originally converted from a traditional final average pay plan to a pension equity plan. The formula used to calculate his benefit is based on the National Commerce Bancorporation Retirement Plan’s provisions and is stated as the greater of (a) 1.65% times final average earnings times all service through 12/31/04 times pay limit in 1994 or (b) 1.35% times final average earnings times all service through 12/31/04. Final average earnings are based on a total pay definition.

 

ERISA Excess Plan

 

All of the named executives participate in SunTrust’s ERISA Excess Plan. The purpose of this nonqualified plan is to provide benefits that would have been provided under the SunTrust Retirement Plan if the Internal Revenue Code did not place annual limits on compensation and benefits. Participation in this plan is limited to executives at certain grade levels who are designated as eligible by the Compensation Committee.

 

The ERISA Excess Plan generally operates, and benefits are calculated in the same manner, as under the SunTrust Retirement Plan using actual service and base salary (but limited to 2 times the annual compensation limit under the Internal Revenue Code, which is 2 times $220,000, resulting in a limit of $440,000 for 2006 and $450,000 for 2007). The ERISA Excess Plan benefit is reduced by the amount payable under the SunTrust Retirement Plan. The ERISA Excess pay limit does not apply to Messrs. Humann and Wells.

 

Participants vest in their ERISA Excess Plan at the same time as in the Retirement Plan (5 years of service). Benefits are paid on the later of the date a participant terminates employment or the first date a participant becomes eligible for early retirement under the SunTrust Retirement Plan (age 55). Benefits are reduced for early retirement in the same manner as benefits are reduced under the SunTrust Retirement Plan. Payment of benefits accrued and vested after 2004 may be delayed for up to 6 months after a participant’s termination of employment because of restrictions under Internal Revenue Code Section 409A. Payment is made in a lump sum, although a participant may elect any optional payment form available under the Retirement Plan, provided that Section 409A timing requirements are met.

 

Death benefits are provided to a vested participant’s named beneficiary when the participant dies before benefit commencement. Payment is made in a lump sum, which is actuarially equivalent to the survivor portion of a joint and 50% annuity (a joint and 100% annuity for executives who began participating before August 13, 1996), calculated as though the participant had retired immediately prior to death. Payment is made as soon as practicable after the later of the date the participant would have reached age 55 or the date of the participant’s death.

 

SunTrust SERP

 

The SunTrust Supplemental Executive Retirement Plan (“SERP”) is designed to provide a targeted level of post-retirement income to a highly select group of key executives who have a significant impact on the long-term growth and profitability of the Company. The SERP benefit supplements the retirement benefits provided under the SunTrust Retirement Plan and the ERISA Excess Plan. The SERP is intended to enable the Company to deliver more competitive levels of total retirement income to our executives and to aid in the recruitment and retention of critical executive talent. The Compensation Committee selects participants and designates each as a Tier 1 (closed to new participants) or Tier 2 participant. All 5 named executive officers are SERP participants.

 

The SERP provides 2 basic target amounts. Both Tier 1 and 2 formulas use average compensation, which is the average of the highest 3 full calendar years of pay out of the last 10 full calendar years. The Tier 1 target benefit is an annual payment at age 65 in the form of a single life annuity equal to 60% of the participant’s average compensation. Annual compensation for a Tier 1 participant is equal to base salary (including salary deferrals and other pre-tax reductions) plus cash bonuses under MIP and PUP earned for the year (without regard to deferral or whether payment is made in the first quarter of the following year). For 2003 only, the PUP amount was replaced with the value at vesting of the 2/11/2003 restricted stock award. Beginning with PUP awards paid in 2008, a cap is placed on the amount of PUP award included in SERP earnings.

 

The Tier 2 target benefit is an annual payment at age 65 in the form of a single life annuity equal to 50% of the participant’s average compensation at 25 years of service. The Tier 2 target benefit is based on the following formula: 2% times years of service (up to 25 years) times average compensation. Annual compensation for Tier 1 and Tier 2 participants are the same except that PUP is excluded for a Tier 2 participant.

 

We do not intend for the Retirement Plan, ERISA Excess Plan or the SERP to provide duplicate benefits. Consequently, we reduce the SERP target amount for both Tier 1 and Tier 2 participants by the amount of benefits payable under the SunTrust Retirement Plan, the ERISA Excess Plan, Social Security benefits, and benefits payable under any other executive arrangement (such as an acquired entity’s qualified and nonqualified pension benefits).

 

The SERP benefit becomes 100% vested when the participant completes 10 years of service and reaches age 60. It also vests upon the participant’s death, if death occurs before benefits commence. The Compensation Committee may establish special vesting dates. On February 10, 1998, the Compensation Committee designated 4 participants, including Mr. Humann, to become 100% vested in their SERP benefits on February 10, 2000. Mr. Wells was designated to become 100% vested in his SERP benefit as of January 1, 2001. Age 60 is the earliest age at which a participant may receive unreduced benefits. Payments of benefits accrued and vested after 2004 may be delayed for up to 6 months after a participant’s termination of employment because of restrictions under Internal Revenue Code Section 409A. Payment is made in a lump sum, although a participant may elect any optional payment form available under the Retirement Plan, provided that Section 409A timing requirements are met.

 

Mr. Wells previously participated in the Crestar SERP, and by agreement with SunTrust after the Crestar merger he is entitled to receive the greater of the benefit calculated under the Crestar SERP formula on the benefit calculated under the SunTrust SERP formula. The formula for Mr. Wells’ Crestar SERP benefit is 50% of average compensation (highest 3 years of base salary plus bonus earned for the year) multiplied by the ratio of years of service as of the retirement date (limited to 20 years) to 20. Early retirement benefits, payable as early as age 55, are reduced by 5% per year for each year the benefit commencement date precedes normal retirement (age 60). All participants became vested in their benefits as a result of the merger with SunTrust. If Mr. Wells receives the Crestar SERP formula, he will receive a joint and 50% annuity unless he chooses another form of annuity available under the SunTrust Retirement Plan; he may not receive a lump sum payment. Projections that have been done recently provide a larger benefit under the SunTrust Tier I SERP.

 

Mr. Reed currently has a benefit under the National Commerce Financial Corporation Supplemental Executive Retirement Plan (the “NCF SERP”), which is payable at age 65. The earliest date for an unreduced payment is age 60. The benefit formula for Mr. Reed is calculated as 1.85% times final average monthly compensation times his years of service after August 1, 2000 (up to 35 years) minus 0.5% of his maximum monthly covered compensation (based on IRS tables) times his years of service after August 1, 2000 (up to 35 years), plus 1.35% times final average monthly compensation times his years of service after August 1, 2000 that are in excess of 35 years. This benefit is

paid as a 10 year certain life annuity unless another form is chosen by the participant. Final average earnings is determined using a total pay definition. The net NCF SERP benefit for Mr. Reed is then offset by the increase since August 1, 2000 in the monthly normal retirement benefit under the NCF Retirement Plan, expressed in the form of a 10 year certain and life annuity. Mr. Reed has elected to receive his benefit under the NCF SERP in a lump sum payment.

 

Pension benefits are payable at their earliest retirement date (age 55 with 5 years of service) from the SunTrust Retirement Plan. The NCF Retirement Plan is payable at termination. The form of payment for the SunTrust Retirement Plan is an annuity, and for those participating prior to 1987, a lump sum is also available; the Crestar Retirement Plan did not have a lump sum option and, therefore, former Crestar Retirement Plan participants may elect only annuities for their grandfathered Crestar benefits, although the NCF Retirement Plan is payable in the form of a lump sum or an annuity. The SunTrust ERISA Excess Plan is payable at age 55 with 5 years of service in the form of a lump sum or an annuity option is also available if the election is made in accordance with Section 409A rules. The SunTrust SERP is payable at age 60 with 10 years of service in the form of lump sum or an annuity option is also available if the election is made in accordance with Section 409A rules. The benefit under the Crestar SERP is payable at age 55 with 10 years of service in the form of a single life annuity, and other optional annuity forms are available if elected by the year end prior to retirement date. The NCF SERP is payable at termination of employment. The normal form of payment is a 50% Joint and Survivor Annuity for married participants, and a lump sum is available if elected in accordance with Section 409A rules. Payments to our executive officers from nonqualified plans may be delayed up to 6 months to comply with Section 409A rules.

 

 

 

 

Our Deferred Compensation Plan allows participants to defer all or 50% of their MIP or PUP awards. We do not contribute to this plan. A hypothetical account is established for each participant and the participant elects investment funds from a broad range of options, which generally are the same funds available to 401(k) Excess Plan participants. Earnings and losses on each account are determined based on the performance of the investment funds selected by the participant. The normal form of payment is a lump sum, payable in the first quarter of the year following a participant’s termination of employment. Installment distributions may be elected provided the participant complies with the election and timing rules of Section 409A. Hardship withdrawals are allowed for an extreme financial hardship, subject to the approval of the Deferral Plan Committee, the administrator for this Plan.

 

Both the 401(k) Excess Plan and the 401(k) Plan allow deferrals, in whole percentages, from 1% to 20% of eligible pay. Generally, eligible pay for purposes of both plans means basic earnings (hourly or salary) plus overtime, shift differential, vacation pay and certain bonuses, including MIP. The 401(k) Excess Plan does not allow deferrals until the executive reaches the maximum deferral under the qualified 401(k) Plan ($15,000 in 2006, increasing to $15,500 in 2007) and then deferrals under the 401(k) Excess Plan continue in the same percentage as under the qualified 401(k) Plan. Earnings on 401(k) Excess Plan accounts are determined by the performance of investments selected by participants. Most of the investment funds available in the 401(k) Plan are also available in the 401(k) Excess Plan except that we record all investments as phantom units in recordkeeping accounts in the 401(k) Excess Plan. The 401(k) Excess Plan also contains frozen accounts attributable to similar plans previously maintained by SunTrust and Crestar. Amounts in frozen accounts and in matching accounts that are invested in phantom shares of SunTrust common stock may not be moved to other funds. Benefits may be distributed to active employees only in the event of a hardship and only for amounts earned and vested before 2005, which are then subject to a forfeiture penalty of 10% of the distribution. Benefits are also distributable in the first quarter of the calendar year following retirement, death or other termination of employment.

 

The following table provides information with respect to each nonqualified deferred compensation plan that is a defined contribution plan, also called an individual account plan. The amounts shown include compensation earned and deferred in prior years, and earnings on, or distributions of, such amounts.

 

The column “Executive Contributions in Last FY” indicates the aggregate amount contributed to such plans by each named executive officer during 2006.

 

The column “Registrant Contributions in Last FY” indicates our aggregate contributions on behalf of each named executive officer during 2006. Generally, our only contributions to nonqualified deferred compensation plans are our matching contributions to the 401(k) Excess Plan. We also make match contributions to the qualified 401(k) plan, but that plan is tax qualified and, therefore, we do not include our contributions to it in this table. We include our matches to both plans in the “All Other Compensation” column of the Summary Compensation Table, above.

 

The column “Aggregate Earnings in Last FY” indicates the total dollar amount of interest or other earnings accrued during 2006, including interest and dividends paid both above and at market rates. Such amounts include dividend payments on vested performance stock and on restricted stock. We pay such amounts to compensate the executive for the deferral, and we do not consider the payment of interest and other earnings at market rates to be compensation. We report such amounts as compensation in the Summary Compensation Table above only to the extent such earnings were paid at above-market rates, and such amounts are shown in a footnote to that table.

 

The column “Aggregate Withdrawals/ Distributions” reports the aggregate dollar amount of all withdrawals by and distributions to the executive during our last fiscal year. In some cases, this includes the release of performance stock which was granted up to 15 years earlier (such stock is distributed upon the earlier of 15 years from grant or the executive’s 64^th birthday). Generally, neither the Withdrawals/Distribution column nor the Aggregate Balance columns represent compensation with respect to our most recently completed fiscal year. The amounts for Mr. Humann and Mr. Rogers in the column “Aggregate Withdrawals/ Distributions” include certain shares of performance stock which were granted 15 years ago and which were distributed to them in 2006. The particular awards required both our share price to exceed specified amounts and the executive to remain employed by SunTrust for 15 years.

 

The column “Aggregate Balance at Last FYE” reports the total balance of the executive’s account as December 31, 2006. Other outstanding grants of such 15-year performance stock that are not forfeitable are also included in the amounts for Mr. Rogers in the column “Aggregate Balance at Last FYE”. The amount shown for Mr. Humann also includes 50,000 shares of vested restricted stock granted in 1989 which will be distributed to him on his 65^th birthday.

 

The amounts in this table include prior grants of performance stock to the extent such grants have vested or were pre-vested and therefore are no longer forfeitable by the executive. “Pre-vested” refers to performance stock which was granted with both time and performance conditions, and for which we accelerated the vesting of the time condition.

 

2006 NONQUALIFIED DEFERRED COMPENSATION TABLE