Sallie Mae 2015 Annual Report Download - page 104

SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
2. Significant Accounting Policies (Continued)
F-14
Investments
Investments consisted of only mortgage-backed securities in 2015 and 2014. We record our investment purchases and
sales on a trade date basis. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of
discounts, which are amortized using the effective interest rate method.
Our investments are classified as available-for-sale and reported at fair value. Unrealized gains or losses on available-for-
sale investments are recorded in equity and are reported as a component of other comprehensive income/(loss), net of
applicable income taxes, unless a decline in the investment’s value is considered to be other-than-temporary, in which case the
loss is recorded directly to earnings.
Management reviews all investments at least quarterly to determine whether any impairment is 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 cost, the financial condition and near-term prospects of the issuer, and the intent and ability to retain the investment to
allow for an anticipated recovery in fair value. If, based on the analysis, it is determined that the impairment is other-than-
temporary, the investment is written down to fair value and a loss is recognized through earnings.
Loans Held for Investment
Loans, consisting of Private Education Loans and FFELP loans, that we have the ability and intent to hold for the
foreseeable future are classified as held for investment, and are carried at amortized cost. Amortized cost includes the
unamortized premiums, discounts, and capitalized origination costs and fees, all of which are amortized to interest income as
discussed under “Loan Interest Income.” Loans which are held for investment are reported net of an allowance for loan losses.
Prior to the Spin-Off, we participated in FFELP rehabilitation loan auctions whereby we bid on portfolios of rehabilitated
FFELP loans offered for sale by guarantors. For a loan to be eligible for rehabilitation, the guaranty agency must have received
reasonable and affordable payments for 9 out of 10 months, at which time the borrower may request that the loan be
rehabilitated. Because monthly payments are usually greater after rehabilitation, not all borrowers request rehabilitation. Upon
rehabilitation, a borrower is again eligible for all of the benefits under the Higher Education Act that he or she was not eligible
for as a borrower on a defaulted loan, such as new federal aid, and the default on the borrower’s credit record is expunged. No
student loan may be rehabilitated more than once. We did not purchase any of these loans in 2015. In 2014, we purchased
$7.5 million of these loans, at 102 percent of par value. These loans were subject to our Allowance for Loan Loss reserve
methodology. We no longer intend to purchase any FFELP loans.
Restricted Cash and Investments
Restricted cash and investments primarily include 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.
Allowance for Loan Losses
We consider a loan to be impaired when, based on current information, a loss has been incurred and it is probable that we
will not receive all contractual amounts due. When making our assessment as to whether a loan is impaired, we also take into
account more than insignificant delays in payment. We generally evaluate impaired loans on an aggregate basis by grouping
similar loans. We maintain an allowance for loan losses at an amount sufficient to absorb probable losses incurred in our
portfolios, as well as future loan commitments, at the reporting date based on a projection of estimated probable credit losses
incurred in the portfolio.