Sallie Mae 2013 Annual Report Download - page 157

SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Significant Accounting Policies (Continued)
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 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. These investments are accounted for at amortized cost 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.
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 and other asset-backed secured financings 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. If a transfer of loans qualifies as
a sale we derecognize the loan and recognize a gain or loss as the difference between the carrying 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.
Securitization Accounting
Our securitizations use a two-step structure with a special purpose entity that legally isolates the transferred
assets from us, even in the event of bankruptcy. Transactions receiving sale treatment are also structured to
ensure that the holders of the beneficial interests issued are not constrained from pledging or exchanging their
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