Sallie Mae 2007 Annual Report Download - page 114

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Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Sensitivity Analysis
The effect of short-term movements in interest rates on our results of operations and financial position
has been limited through our interest rate risk management. The following tables summarize the effect on
earnings for the years ended December 31, 2007 and 2006 and the effect on fair values at December 31, 2007
and 2006, based upon a sensitivity analysis performed by management assuming a hypothetical increase in
market interest rates of 100 basis points and 300 basis points while funding spreads remain constant.
Additionally, as it relates to the effect on earnings, a sensitivity analysis was performed assuming the LIBOR
index increased 25 basis points while other indices remained constant. Both of these analyses do not consider
any potential impairment to our Residual Interests that may result from a higher discount rate that would be
used to compute the present value of the cash flows if long-term interest rates increased. See Note 9 to the
consolidated financial statements, “Student Loan Securitization,” which details the potential decrease to fair
value that could occur.
(Dollars in millions, except per share amounts) $ % $ % $ %
Change from
Increase of
100 Basis
Points
Change from
Increase of
300 Basis
Points
Increase
25 Basis
Points
Interest Rates:
LIBOR index to
other indices
Year Ended December 31, 2007
Effect on Earnings
Increase/(decrease) in pre-tax net income before
unrealized gains (losses) on derivative and hedging
activities ................................... $ 11 1% $ 32 4% $(196) (23)%
Unrealized gains (losses) on derivative and hedging
activities ................................... 213 16 375 28 80 6
Increase in net income before taxes................. $224 46% $407 85% $(116) (24)%
Increase in diluted earnings per share ............... $.361 16% $.674 30% $(.281) (12)%
(Dollars in millions, except per share amounts) $ % $ % $ %
Change from
Increase of
100 Basis
Points
Change from
Increase of
300 Basis
Points
Increase
25 Basis
Points
Interest Rates:
LIBOR index
to other indices
Year Ended December 31, 2006
Effect on Earnings
Increase/(decrease) in pre-tax net income before
unrealized gains (losses) on derivative and hedging
activities ................................... $ (4) —% $ (20) (1)% $ (120) (14)%
Unrealized gains (losses) on derivative and hedging
activities ................................... 136 59 215 93 (4) —
Increase in net income before taxes................. $132 7% $195 10% $(124) (26)%
Increase in diluted earnings per share ............... $.213 8% $.352 13% $(.275) (12)%
113