Sallie Mae 2009 Annual Report Download - page 144

2. Significant Accounting Policies (Continued)
note holders are classified as restricted investments. Finally, cash received from lending institutions that is invested
pending disbursement for student loans is restricted and cannot be disbursed for any other purpose.
Investments
Investments are held to provide liquidity and to serve as a source of income. The majority of the
Company’s investments are classified as available-for-sale and such securities are carried at fair value, with
the temporary changes in fair value carried as a separate component of stockholders’ equity. Changes in fair
value for available-for-sale securities that have been designated as the hedged item in an ASC 815,
“Derivatives and Hedging,” fair value hedge (as it relates to the hedged risks) are recorded in the “gains
(losses) on derivative and hedging activities, net” line in the consolidated statements of income offsetting
changes in fair value of the derivative which is hedging such investment. Temporary changes in fair value of
the security as it relates to non-hedged risks are carried as a separate component of stockholders’ equity. The
amortized cost of debt securities in this category is adjusted for amortization of premiums and accretion of
discounts, which are amortized using the effective interest rate method. Other-than-temporary impairment is
evaluated by considering several factors including the length of time and extent to which the fair value has
been less than the amortized cost basis, the financial condition and near-term prospects of the security
(considering factors such as adverse conditions specific to the security and ratings agency actions), and the
intent and ability to retain the investment in order to allow for an anticipated recovery in fair value.
Other-than-temporary impairment is recorded in earnings if the fair value is less than the amortized cost and
the Company intends to sell the security or it is more likely than not that the Company will be required to sell
the security before recovery of the loss. If the impairment is not other-than-temporary, the portion of the
impairment related to credit losses is recorded in earnings and the impairment related to other factors is
recorded in other comprehensive income. Securities classified as trading are accounted for at fair value with
unrealized gains and losses included in investment income. Securities that the Company has the intent and
ability to hold to maturity are classified as held-to-maturity and are accounted for at amortized cost unless the
security is determined to have an other-than-temporary impairment. In this case it is accounted for in the same
manner described above.
The Company also has other investments, including a receivable for cash collateral posted to derivative
counterparties, the Company’s remaining investment in The Reserve Primary Fund and leveraged leases,
primarily with U.S. commercial airlines. These investments are accounted for at amortized cost net of
impairments in other investments. Insurance-related investments are carried in other assets.
Interest Expense
Interest expense is based upon contractual interest rates adjusted for the amortization of debt issuance
costs and premiums and the accretion of discounts. The Company’s interest expense may also be adjusted for
net payments/receipts related to interest rate and foreign currency swap agreements and interest rate futures
contracts that qualify and are designated as hedges under GAAP. Interest expense also includes the
amortization of deferred gains and losses on closed hedge transactions that qualified as cash flow hedges.
Amortization of debt issue costs, premiums, discounts and terminated hedge basis adjustments are recognized
using the effective interest rate method.
Transfer of Financial Assets
The Company accounts for the transfer of financial assets under ASC 860. The primary activity which
falls under ASC 860 for the Company is securitization and other secured borrowing accounting which is
further discussed below. The company’s indentured trust debt, ABCP borrowings, Ed Conduit and ED
F-17
SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts, unless otherwise stated)