Sallie Mae 2012 Annual Report Download - page 128

SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Significant Accounting Policies (Continued)
Cash and Cash Equivalents
Cash and cash equivalents includes term federal funds, Eurodollar deposits, commercial paper, asset-backed
commercial paper, treasuries, money market funds and bank deposits with original terms to maturity of less than
three months.
Restricted Cash and Investments
Restricted cash primarily includes amounts held in student loan securitization trusts and other secured
borrowings. This cash must be used to make payments related to trust obligations. Amounts on deposit in these
accounts are primarily the result of timing differences between when principal and interest is collected on the
trust assets and when principal and interest is paid on trust liabilities.
In connection with our tuition payment plan product, we receive payments from customers that in turn are
owed to schools. This cash, a majority of which has been deposited at the Bank, our Utah industrial bank
subsidiary, is held in escrow for the beneficial owners. In addition, the cash rebates that Upromise members earn
from qualifying purchases from Upromise’s participating companies are held in trust for the benefit of the
members. This cash is held pursuant to a trust document until distributed in accordance with the Upromise
member’s request and/or the terms of the Upromise service agreement. Upromise, which acts as the trustee for
the trust, has deposited a majority of the cash with the Bank pursuant to a money market deposit account
agreement between the Bank and Upromise as trustee of the trust. Subject to capital requirements and other laws,
regulations and restrictions applicable to Utah industrial banks, the cash that is deposited with the Bank in
connection with the tuition payment plan and the Upromise rebates described above is not restricted and,
accordingly, is not included in restricted cash and investments in our consolidated financial statements, as there is
no restriction surrounding our use of the funds.
Securities pledged as collateral related to our derivative portfolio, where the counterparty has rights to
replace the securities, are classified as restricted. When the counterparty does not have these rights, the security is
recorded in investments and disclosed as pledged collateral in the notes. Additionally, certain counterparties
require cash collateral pledged to us to be segregated and held in restricted cash accounts. Cash balances that our
indentured trusts deposit in guaranteed investment contracts that are held in trust for the related 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
Our available-for-sale investment portfolio consists of investments that are AAA equivalent securities and
are carried at fair value, with the temporary changes in fair value carried as a separate component of
stockholders’ equity, net of taxes. 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 to allow for an anticipated recovery in
fair value. The entire fair value loss on a security that is other-than-temporary impairment is recorded in earnings
if we intend to sell the security or if it is more likely than not that we will be required to sell the security before
the expected recovery of the loss. However, if the impairment is other-than-temporary, and those two conditions
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