Sallie Mae 2007 Annual Report Download - page 107

“CRITICAL ACCOUNTING POLICIES AND ESTIMATES — Effects of Consolidation Activity on Esti-
mates.” Also, we must maintain sufficient, short-term liquidity to enable us to cost-effectively refinance
previously securitized FFELP loans as they are consolidated back on to our balance sheet.
Interest Rate Risk Management
Asset and Liability Funding Gap
The tables below present our assets and liabilities (funding) arranged by underlying indices as of
December 31, 2007. In the following GAAP presentation, the funding gap only includes derivatives that
qualify as effective SFAS No. 133 hedges (those derivatives which are reflected in net interest margin, as
opposed to those reflected in the “gains/(losses) on derivatives and hedging activities, net” line in the
consolidated statement of income). The difference between the asset and the funding is the funding gap for the
specified index. This represents our exposure to interest rate risk in the form of basis risk and repricing risk,
which is the risk that the different indices may reset at different frequencies or may not move in the same
direction or at the same magnitude.
Management analyzes interest rate risk on a Managed basis, which consists of both on-balance sheet and
off-balance sheet assets and liabilities and includes all derivatives that are economically hedging our debt
whether they qualify as effective hedges under SFAS No. 133 or not. Accordingly, we are also presenting the
asset and liability funding gap on a Managed basis in the table that follows the GAAP presentation.
GAAP Basis
Index
(Dollars in billions)
Frequency of
Variable
Resets Assets Funding
(1)
Funding
Gap
3 month Commercial paper . . ............. daily $ 98.6 $ — $ 98.6
3 month Treasury bill ................... weekly 7.8 .2 7.6
Prime ............................... annual .6 — .6
Prime ............................... quarterly 1.5 — 1.5
Prime ............................... monthly 13.6 — 13.6
PLUS Index .......................... annual 1.6 — 1.6
3-month LIBOR ....................... daily — — —
3-month LIBOR ....................... quarterly 1.0 104.0 (103.0)
1-month LIBOR
(2)
..................... monthly .1 14.3 (14.2)
CMT/CPI index ....................... monthly/quarterly — 3.8 (3.8)
Non Discrete reset
(3)
.................... monthly — 2.8 (2.8)
Non Discrete reset
(4)
.................... daily/weekly 14.0 16.5 (2.5)
Fixed Rate
(5)
.......................... 16.8 14.0 2.8
Total................................ $155.6 $155.6 $ —
(1)
Funding includes all derivatives that qualify as hedges under SFAS No. 133.
(2)
Funding includes a portion of Interim ABCP Facility.
(3)
Funding includes auction rate securities.
(4)
Assets include restricted and non-restricted cash equivalents and other overnight type instruments. Funding includes a portion of
Interim ABCP Facility.
(5)
Assets include receivables and other assets (including Retained Interests, goodwill and acquired intangibles). Funding includes
other liabilities and stockholders’ equity (excluding Series B Preferred Stock).
The “Funding Gaps” in the above table are primarily interest rate mismatches in short-term indices
between our assets and liabilities. We address this issue typically through the use of basis swaps that typically
convert quarterly 3-month LIBOR to other indices that are more correlated to our asset indices. These basis
swaps do not qualify as effective hedges under SFAS No. 133 and as a result the effect on the funding index
is not included in our interest margin and is therefore excluded from the GAAP presentation.
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