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74 SunTrust Banks, Inc. Annual Report 2003
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
The Company’s provisions for income taxes for the three years ended December 31 differ from the amounts computed by applying the
statutory federal income tax rate of 35% to income before income taxes. A reconciliation of this difference is as follows:
(Dollars in thousands) 2003 2002 2001
Tax provision at federal statutory rate $668,198 $638,163 $706,902
(Decrease) increase resulting from
Tax-exempt interest (31,951) (29,366) (29,848)
Income tax credits, net (39,653) (51,243) (17,320)
State income taxes, net of federal benefit 26,807 6,074 13,943
Dividends on subsidiary preferred stock (23,567) (25,530) —
Reversal of deferred liability —(25,000) —
Other (22,993) (21,583) (19,774)
Provision for income taxes $576,841 $491,515 $653,903
Temporary differences create deferred tax assets and liabilities that are detailed below as of December 31, 2003 and 2002:
Deferred Tax Assets (Liabilities)
(Dollars in thousands) 2003 2002
Allowance for loan losses $342,510 $321,491
Employee benefits (248,225) (150,675)
Fixed assets (65,159) (34,402)
Loans (41,518) (27,863)
Mortgage (118,379) (80,797)
Leasing (677,515) (562,171)
Accrued expenses 76,522 83,003
Unrealized gains on securities available for sale (847,538) (779,274)
Other 76,705 54,664
Net deferred tax liability $(1,502,597) $(1,176,024)
SunTrust and its subsidiaries file consolidated income tax
returns where permissible. Each subsidiary remits current taxes
to or receives current refunds from the Parent Company based
on what would be required had the subsidiary filed an income
tax return as a separate entity. The Company’s federal and state
income tax returns are subject to review and examination by
government authorities. Various such examinations are now in
progress. In the opinion of management, any adjustments which
may result from these examinations will not have a material
effect on the Company’s Consolidated Financial Statements.
NOTE 16
EMPLOYEE BENEFIT PLANS
SunTrust sponsors various incentive plans for eligible employees.
The Management Incentive Plan for key executives provides for
annual cash awards, if any, based on the attainment of a profit
plan goal and the achievement of business unit, as well as, indi-
vidual performance objectives. The Performance Unit Plan (PUP)
for key executives provides awards, if any, based on three-year
earnings performance in relation to earnings goals established
by the Compensation Committee (Committee) of the Company’s
Board of Directors. In 2003, a restricted stock grant was made
in lieu of implementing the PUP for the 2003-2005 cycle. This
restricted stock grant will vest after a three year restricted period,
and will be transferred to the participant upon vesting; a pro rata
number of shares immediately vests upon death, disability, or
retirement. Participants receive dividends and maintain voting
rights on these shares.
The Company also sponsors an Executive Stock Plan (Stock
Plan) under which the Committee has the authority to grant
stock options, restricted stock and performance based restricted
stock (performance stock) to key employees of the Company.
The Company has 14 million shares of common stock reserved
for issuance under the Stock Plan, of which no more than 4 mil-
lion shares may be issued as restricted stock. Options granted
are at no less than the fair market value of a share of stock on
the grant date and may be either tax-qualified incentive stock
options or nonqualified options. Prior to 2002, the Company did
not record expense as a result of the grant or exercise of any of
the stock options. Effective January 1, 2002, the Company
adopted the fair-value recognition provision of SFAS No. 123,
Accounting for Stock-Based Compensation, prospectively and
began expensing the cost of stock options.
With respect to performance stock, shares must be granted,
awarded and vested before participants take full title. Awards are
distributed on the earliest of (i) fifteen years after the date shares
are awarded to participants; (ii) the participant attaining age 64;
(iii) death or disability of a participant; or (iv) a change in control
of the Company as defined in the Stock Plan. Dividends are paid
on awarded but unvested performance stock and participants
may exercise voting privileges on such shares.