SunTrust 2007 Annual Report Download - page 121

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SUNTRUST BANKS, INC.
Notes to Consolidated Financial Statements (Continued)
issued as restricted stock. Stock options are granted at a price which is no less than the fair market value of a share of
SunTrust common stock on the grant date and may be either tax-qualified incentive stock options or non-qualified stock
options. Stock options typically vest over three years and generally have a maximum contractual life of ten years and upon
option exercise, shares are issued to employees from treasury stock.
Shares of restricted stock may be granted to employees and directors and typically cliff vest after three years. Restricted
stock grants may be subject to one or more objective employment, performance or other grant conditions as established by
the Committee at the time of grant. Any shares of restricted stock that are forfeited will again become available for issuance
under the Stock Plan. An employee or director has the right to vote the shares of restricted stock after grant unless and until
they are forfeited. Compensation cost for restricted stock is equal to the fair market value of the shares at the date of the
award and is amortized to compensation expense over the vesting period. Dividends are paid on awarded but unvested
restricted stock.
With respect to currently outstanding performance stock, shares must be granted, awarded and vested before participants take
full title. After performance stock is granted by the Committee, specified portions are awarded based on increases in the
average price of SunTrust common stock above the initial price specified by the Committee. Awards are distributed, subject
to continued employment, on the earliest of (i) fifteen years after the date shares are awarded to participants; (ii) the
participant attaining age 64; (iii) death or disability of a participant; or (iv) a change in control of the Company as defined in
the Stock Plan. Dividends are paid on awarded but unvested performance stock, and participants may exercise voting
privileges on such shares.
The compensation element for performance stock is equal to the fair market value of the shares at the date of the award and is
amortized to compensation expense over the period from the award date to the participant attaining age 64 or the 15th
anniversary of the award date, whichever comes first. Approximately 40% of performance stock awarded became fully
vested on February 10, 2000 and is no longer subject to the forfeiture condition set forth in the original agreements. This
early-vested performance stock was converted into an equal number of “Phantom Stock Units” as of that date. Payment of
Phantom Stock Units will be made to participants in shares of SunTrust common stock upon the earlier to occur of (1) the
date on which the participant would have vested in his or her performance stock or (2) the date of a change in control.
Dividend equivalents will be paid at the same rate as the shares of performance stock; however, these units will not carry
voting privileges.
The fair value of each stock option award is estimated on the date of grant using a Black-Scholes valuation model. Expected
volatility is based on the historical volatility of the Company’s stock, using daily price observations over the expected term
of the stock options. The expected term represents the period of time that stock options granted are expected to be
outstanding and is derived from historical data which is used to evaluate patterns such as stock option exercise and employee
termination. The expected dividend yield is based on recent dividend history, given that yields are reasonably stable. The
risk-free interest rate is derived from the U.S. Treasury yield curve in effect at the time of grant based on the expected life of
the option.
The weighted average fair values of options granted during 2007, 2006 and 2005 were $16.72, $16.41 and $8.10,
respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing
model with the following assumptions:
2007 2006 2005
Expected dividend yield 3.01% 3.18% 2.81%
Expected stock price volatility 20.07 25.64 11.98
Risk-free interest rate (weighted average) 4.70 4.51 3.62
Expected life of options 6 years 6 years 5 years
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