SunTrust 2013 Annual Report Download - page 166

Notes to Consolidated Financial Statements, continued
150
Shares or units 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 criteria, including employment, performance, or other conditions as established
by the Compensation 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
on the grant date of the award and is amortized to compensation expense over the vesting period. Dividends are paid on
awarded but unvested restricted stock. We do not pay dividends on unvested RSU awards but instead accrue and reinvest them
in equivalent shares of SunTrust common stock and pay them only if the underlying RSU award vests. Generally, RSU awards
are classified as equity. During 2012, however, there were 574,257 RSUs granted that were classified as a liability because
the grant date had not been achieved as defined under U.S. GAAP. They were granted with a fair value of $21.67 per unit on
the grant date. The balance of these RSUs classified as a liability at December 31, 2013 and 2012 was $17 million and $12
million, respectively.
The fair value of each stock option award is estimated on the date of grant using a Black-Scholes option pricing model. The
expected volatility represents the implied volatility of SunTrust stock. The expected term represents the period of time that
the stock options granted are expected to be outstanding and is derived from historical data that is used to evaluate patterns
such as stock option exercise and employee termination. Through the repurchase of preferred stock issued to the U.S. Treasury
in the first quarter of 2011, the expected dividend yield was based on the current rate in effect at the grant date. Beginning in
second quarter 2011, the Company began using the projected dividend to be paid as the dividend yield assumption. 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. Stock options are granted at an exercise price that 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 pro-rata over three years and generally have a maximum contractual life of ten years. Upon exercise, shares are
generally issued from treasury stock. The weighted average fair value of options granted during 2013, 2012, and 2011 were
$7.37, $7.83, and $10.51 per share, respectively. The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model based on the following assumptions:
Year Ended December 31
2013 2012 2011
Dividend yield 1.28% 0.91% 0.75%
Expected stock price volatility 30.98 39.88 34.87
Risk-free interest rate (weighted average) 1.02 1.07 2.48
Expected life of options 6 years 6 years 6 years