Sallie Mae 2009 Annual Report Download - page 54

have been 62 basis points in the fourth quarter of 2008 if ED had not addressed this issue by using the CPFF.
ED decided that no such correction was required during 2009. This resulted in a CP/LIBOR spread of 52 basis
points, 45 basis points, 13 basis points and 6 basis points in the first, second, third and fourth quarters of
2009, respectively, (29 basis points for the full year of 2009) compared to the CP/LIBOR spread of 21 basis
points in the fourth quarter of 2008 and the historic average spread through the third quarter of 2008 of
approximately 10 basis points.
“Core Earnings” net interest income would have been $139 million, $105 million and $5 million higher
in the first, second and third quarters of 2009, respectively, at a historical CP/LIBOR spread of 10 basis points.
Because of the low interest rate environment, the Company earned additional Economic Floor Income not
included in “Core Earnings” of $126 million, $141 million, and $36 million in the first, second and third
quarters of 2009, respectively. Although we exclude these amounts from our “Core Earnings” presentation, the
levels earned in 2009 quarters can be viewed as offsets to the CP/LIBOR basis exposure in low interest rate
environments where we earned Floor Income.
Additionally, the index paid on borrowings under ED’s Participation Program is based on the prior
quarter’s CP rates, whereas the index earned on the underlying loans is based on the current quarter’s CP rates.
The declines in CP rates during the first, second, third and fourth quarters of 2009 resulted in $40 million,
$13 million, $6 million and $2 million of higher interest expense in the first, second, third and fourth quarters
of 2009, respectively.
An overview of this segment and recent developments that have significantly impacted this segment are
included in the “Item 1. Business” section of this document.
53