Sallie Mae 2012 Annual Report Download - page 129

SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Significant Accounting Policies (Continued)
do not exist, 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 we have 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.
We also have other investments, including a receivable for cash collateral posted to derivative
counterparties and our remaining investment in leveraged aircraft leases. These investments are accounted for at
amortized cost net of impairments in other investments.
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. Our 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. Interest expense also includes the amortization of deferred gains and losses
on closed hedge transactions that qualified as hedges. Amortization of debt issuance costs, premiums, discounts
and terminated hedge-basis adjustments are recognized using the effective interest rate method.
In addition, three Private Education Loan securitizations issued in 2009 were callable at 93 or 94 percent of
the outstanding principal (depending on the terms of the note). Two of these bonds have already been called and
we have concluded that it is probable we will call the remaining bond at the call date at the designated discount.
Probability is based on our assessment that this bond will be refinanced at the call date at or lower than a
breakeven cost of funds based on the call discount. As a result, we are accreting this call discount as a reduction
to interest expense through the first call date using the effective interest rate method. The bond is first callable in
August 2013. We have accreted approximately $58 million, cumulatively, as a reduction of interest expense
through December 31, 2012 related to the bond. If it becomes less than probable we will call this bond at a future
date, it will result in us reversing this prior accretion as a cumulative catch-up adjustment.
Transfer of Financial Assets and Extinguishments of Liabilities
We account for loan sales and debt repurchases in accordance with the applicable accounting guidance. Our
securitizations, indentured trust debt, ABCP borrowings, ED Conduit Program Facility and ED Participation
Program Facility are accounted for as on-balance sheet secured borrowings. See “Securitization Accounting” of
this Note 2 for further discussion on the criteria assessed to determine whether a transfer of financial assets is a
sale or a secured borrowing and Note 6, “Borrowings,” for further discussion on the ED Funding Programs. If a
transfer of loans qualifies as a sale we derecognize the loan and recognize a gain or loss as the difference
between the carry basis of the loan sold and liabilities retained and the compensation received.
We periodically repurchase our outstanding debt in the open market or through public tender offers. We
record a gain or loss on the early extinguishment of debt based upon the difference between the carrying cost of
the debt and the amount paid to the third party and is net of hedging gains and losses when the debt is in a
qualifying hedge relationship.
We recognize the results of a transfer of loans and the extinguishment of debt based upon the settlement
date of the transaction.
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