Sallie Mae 2010 Annual Report Download - page 91

Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Sensitivity Analysis
Our interest rate risk management seeks to limit the impact of short-term movements in interest rates on
our results of operations and financial position. The following tables summarize the effect on earnings for the
years ended December 31, 2010 and 2009 and the effect on fair values at December 31, 2010 and 2009, 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 funding index increases 25 basis
points while holding the asset index constant, if the funding index is different than the asset index. Both of
these analyses do not consider any potential mark-to-market losses that may occur related to our Residual
Interests (prior to the adoption of topic updates on ASC 810 on January 1, 2010) that may result from asset
and funding basis divergence or a higher discount rate that would be used to compute the present value of the
cash flows if long-term interest rates increased.
(Dollars in millions, except per share amounts) $ % $ % $ %
Change from
Increase of
100 Basis
Points
Change from
Increase of
300 Basis
Points
Increase of
25 Basis Points
Interest Rates:
Asset
and Funding
Index
Mismatches
(1)
Year Ended December 31, 2010
Effect on Earnings
Increase/(decrease) in pre-tax net income before unrealized gains
(losses) on derivative and hedging activities .............. $ 3 1% $ 33 5% $(372) (61)%
Unrealized gains (losses) on derivative and hedging activities . . . 131 27 82 17 (28) (6)
Increase in net income before taxes ...................... $134 12% $115 11% $(400) (37)%
Increase in diluted earnings per common share .............. $.270 29% $.235 25% $(.819) (87)%
(Dollars in millions, except per share amounts) $ % $ % $ %
Change from
Increase of
100 Basis
Points
Increase of
25 Basis Points
Change from
Increase of
300 Basis
Points
Interest Rates:
Asset
and Funding
Index
Mismatches
(1)
Year Ended December 31, 2009
Effect on Earnings
Increase/(decrease) in pre-tax net income before unrealized
gains (losses) on derivative and hedging activities ........ $ (70) (7)% $ (31) (3)% $ (321) (31)%
Unrealized gains (losses) on derivative and hedging activities . . 108 33 18 5 106 33
Increase in net income before taxes ..................... $ 38 5% $ (13) (2)% $ (215) (30)%
Increase in diluted earnings per common share ............ $.080 21% $(.027) (7)% $(.456) (120)%
(1) If an asset is not funded with the same index/frequency reset of the asset then it is assumed the funding index increases 25 basis points
while holding the asset index constant.
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