Sallie Mae 2008 Annual Report Download - page 103

The Company also records unrecognized tax benefits in accordance with FIN No. 48. Unrecognized tax
benefits were $81 million and $176 million for the years ended December 31, 2008 and 2007, respectively.
For additional information, see Note 19, “Income Taxes,” to the consolidated financial statements.
OFF-BALANCE SHEET LENDING ARRANGEMENTS
The following table summarizes the contractual amounts related to off-balance sheet lending-related
financial instruments at December 31, 2008.
1 Year
or Less
2to3
Years Total
Lines of credit ............................................ $221 $800 $1,021
We have issued lending-related financial instruments including lines of credit to meet the financing needs
of our institutional customers. In connection with these agreements, the Company also enters into a
participation agreement with the institution to participate in the loans as they are originated. In the event that a
line of credit is drawn upon, the loan is collateralized by underlying student loans and is usually participated
on the same day. The contractual amount of these financial instruments represents the maximum possible
credit risk should the counterparty draw down the commitment, the Company does not participate in the loan,
and the counterparty subsequently fails to perform according to the terms of our contract. The remaining total
contractual amount available to be borrowed under these commitments is $1.0 billion. We do not believe that
these instruments are representative of our actual future credit exposure. To the extent that the lines of credit
are drawn upon, the balance outstanding is collateralized by student loans. At December 31, 2008, outstanding
draws on lines of credit were approximately $9 million, and are reflected in other loans in the consolidated
balance sheet. For additional information, see Note 17, “Commitments, Contingencies and Guarantees,” to the
consolidated financial statements.
The Company maintains forward contracts to purchase loans from our lending partners at contractual
prices. These contracts typically have a maximum amount we are committed to buy, but lack a fixed or
determinable amount as it ultimately is based on the lending partner’s origination activity. FFELP forward
purchase contracts typically contain language relieving us of most of our responsibilities under the contract
due to, among other things, changes in student loan legislation. These commitments are not accounted for as
derivatives under SFAS No. 133 as they do not meet the definition of a derivative due to the lack of a fixed
and determinable purchase amount. At December 31, 2008, there were $2.3 billion originated loans (FFELP
and Private Education Loans) in the pipeline that the Company is committed to purchase.
MANAGEMENT OF RISKS
Significant risks that affect the Company may be grouped in the following categories: financial and
funding, credit, operations, legislation and regulation, and market competition. These risks are discussed in the
“Item 1A. Risk Factors” section of this document. Management’s strategies for managing some of these risks
are discussed below.
Risk Management Processes
Risk management is a shared responsibility throughout the Company. The Board of Directors and its
committees oversee risk and risk management practices. Executive management is responsible for monitoring
and assessing risks. Managers of individual lines of business have direct and primary responsibility and
accountability to manage risks specific in their operations by identifying and assessing risks, implementing
internal controls and reporting control issues to the Company’s Risk Assessment Department. The Risk
Assessment Department monitors these efforts, identifies areas that require increased focus and resources, and
reports significant control issues to executive management and the Audit Committee of the Board. The
Company’s centralized staff functions, such as accounting, human resources and legal, further strengthen our
risk controls.
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