Sallie Mae 2009 Annual Report Download - page 61

The “Core Earnings” basis student loan spread, before the 2008 Asset Backed Financing Facilities fees,
decreased 4 basis points from 2007 for 2008, primarily due to an increase in the Company’s cost of funds, due
to an increase in the credit spreads on the Company’s debt issued during the past year due to the current credit
environment. The decrease to the student loan spread was partially offset by the growth in the Private
Education Loan portfolio which earns a higher margin than FFELP.
The “Core Earnings” basis FFELP loan spread for 2009 declined from 2008 and 2007 primarily as a
result of the increase in cost of funds previously discussed, as well as the mix of the FFELP portfolio shifting
towards loans originated subsequent to October 1, 2007, which have lower yields as a result of the CCRAA.
The “Core Earnings” basis Private Education Loan spread before provision for loan losses for 2009
decreased from 2008 primarily as a result of the increase in cost of funds previously discussed. The changes in
the “Core Earnings” basis Private Education Loan spread after provision for loan losses for all periods
presented was primarily due to the timing and amount of provision associated with our allowance for Private
Education Loan Losses as discussed below (see “Private Education Loan Losses — Allowance for Private
Education Loan Losses”).
“Core Earnings” Basis Other Asset Spread
The “Core Earnings” basis other asset spread is generated from cash and investments (both restricted and
unrestricted) primarily in our liquidity portfolio, and other loans. The Company invests its liquidity portfolio
primarily in short-term securities with maturities of one week or less in order to manage counterparty credit
risk and maintain available cash balances. The “Core Earnings” basis other asset spread for 2009 decreased
42 basis points from 2008 and decreased 40 basis points from 2007 to 2008. Changes in this spread primarily
relate to differences between the index basis and reset frequency of the asset indices and funding indices. In
volatile interest rate environments, the asset and debt reset frequencies will lag each other. Changes in this
spread are also a result of the increase in our cost of funds, as previously discussed.
“Core Earnings” Net Interest Margin
The “Core Earnings” net interest margin for 2009, before the 2008 Asset-Backed Financing Facilities
fees, decreased 24 basis points from 2008 and remained constant from 2007 to 2008. These changes primarily
relate to the previously discussed changes in the “Core Earnings” basis student loan and other asset spreads.
The Managed student loan portfolio, as a percentage of the overall interest-earning asset portfolio did not
change substantially between 2009 and 2008; however, the increase in the percentage between 2008 and 2007
increased the net interest margin by 6 basis points. This increase was offset by the factors discussed above.
See “LIQUIDITY AND CAPITAL RESOURCES — Additional Funding Sources for General Corporate
Purposes — Asset-Backed Financing Facilities” for a discussion of the 2008 Asset-Backed Financing Facilities
fees and related extensions.
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