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Annual Report 2003 SunTrust Banks, Inc. 39
DERIVATIVE INSTRUMENTS
The Company monitors its sensitivity to changes in interest rates
and may use derivative instruments to limit the volatility of net
interest income. Derivative instruments increased net interest
income in 2003 by $64.0 million and decreased net interest
income in 2002 by $50.4 million.
For a detailed discussion of the impact of derivatives on
Accumulated Other Comprehensive Income see Note 23.
The following tables summarize the derivative instruments
entered into by the Company as an end-user. See Note 17 for a
complete description of the derivative instruments and activity
for 2003 and 2002.
TABLE 22
RISK MANAGEMENT DERIVATIVE FINANCIAL INSTRUMENTS1
As of December 31, 2003
Gross Gross Average
Notional Unrealized Unrealized Maturity
(Dollars in millions) Amount Gains6Losses6Equity7in Years
Asset Hedges
Fair value hedges
Interest rate swaps2$25$—$(1) $ — 0.82
Forward contracts33,938 — (43) — 0.07
Total asset hedges $3,963 $ — $(44) $ — 0.07
Liability Hedges
Cash flow hedges
Interest rate swaps4$3,557 $ — $(27) $(17) 1.38
Fair value hedges
Interest rate swaps55,917 126 (51) — 8.56
Total liability hedges $9,474 $126 $(78) $(17) 5.86
1Includes only derivative financial instruments which are qualifying hedges under SFAS No. 133 and 149. All of the Company’s other derivative instruments are classified as trading. All interest
rate swaps have resets of three months or less, and are the pay or receive rates in effect at December 31, 2003.
2Interest rate swaps are designated as fair value hedges of fixed rate loans.
3Forward contracts are designated as fair value hedges of mortgage lending activities.
4Represents interest rate swaps designated as cash flow hedges of floating rate certificates of deposit and other variable rate debt.
5Interest rate swaps are designated as fair value hedges of subordinated notes, FHLB Advances and other fixed rate debt.
6Represents the fair value of derivative financial instruments less accrued interest receivable or payable.
7At December 31, 2003, the net unrealized loss on derivatives included in accumulated other comprehensive income, which is a component of stockholders’ equity, was $17.3 million, net of tax,
that represents the effective portion of the net gains and losses on derivatives that qualify as cash flow hedges. Gains or losses on hedges of interest rate risk will be classified into interest income
or expense as a yield adjustment of the hedged item in the same period that the hedged cash flows impact earnings. As of December 31, 2003, $12.6 million of net losses, net of income taxes
recorded in accumulated other comprehensive income are expected to be reclassified as interest expense or other income during the next twelve months.
As of December 31, 2002
Gross Gross Average
Notional Unrealized Unrealized Maturity
(Dollars in millions) Amount Gains Losses Equity in Years
Asset Hedges
Cash flow hedges
Equity collar $ 56 $ — $ — $ — 0.25
Fair value hedges
Interest rate swaps 25 — (1) — 1.82
Forward contracts 6,286 — (79) — 0.08
Total asset hedges $6,367 $ — $(80) $ — 0.09
Liability Hedges
Cash flow hedges
Interest rate swaps $2,345 $ — $(72) $(47) 0.91
Fair value hedges
Interest rate swaps 2,525 158 — — 9.32
Total liability hedges $4,870 $158 $(72) $(47) 5.27