10-Q 1 w79858e10vq.htm FORM 10-Q e10vq
Table of Contents

 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
 
Form 10-Q
 
     
(Mark One)    
þ
  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the quarterly period ended September 30, 2010
or
o
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the transition period from          to          
 
Commission File Number: 001-13251
 
 
 
 
SLM Corporation
(Exact name of registrant as specified in its charter)
 
     
Delaware   52-2013874
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)
     
12061 Bluemont Way, Reston, Virginia   20190
(Address of principal executive offices)   (Zip Code)
 
(703) 810-3000
 
(Registrant’s telephone number, including area code)
 
 
 
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ     No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer þ Accelerated filer o Non-accelerated filer o Smaller reporting company o
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes þ     No o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o     No þ
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
 
     
Class   Outstanding at October 31, 2010
 
Voting common stock, $.20 par value   485,590,403 shares
 


 

 
SLM CORPORATION
 
FORM 10-Q
INDEX
September 30, 2010
 
                 
       
      Financial Statements     2  
      Management’s Discussion and Analysis of Financial Condition and Results of Operations     64  
      Quantitative and Qualitative Disclosures about Market Risk     136  
      Controls and Procedures     141  
       
      Legal Proceedings     142  
      Risk Factors     143  
      Unregistered Sales of Equity Securities and Use of Proceeds     143  
      Defaults Upon Senior Securities     143  
      (Removed and Reserved)     143  
      Other Information     143  
      Exhibits     144  
    145  
    146  
 EX-10.1
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2
 EX-101 INSTANCE DOCUMENT
 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT
 EX-101 DEFINITION LINKBASE DOCUMENT
 
 
(1) Definitions for capitalized terms used in this document can be found in the “Glossary” at the end of this document.


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Table of Contents

 
PART I. FINANCIAL INFORMATION
 
Item 1.   Financial Statements
 
SLM CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars and shares in thousands, except per share amounts)
(Unaudited)
 
                 
    September 30,
    December 31,
 
    2010     2009  
 
Assets
               
FFELP Stafford and Other Student Loans (net of allowance for losses of $120,386 and $104,219, respectively)
  $ 46,026,138     $ 42,978,874  
FFELP Stafford Loans Held-for-Sale
    20,655,561       9,695,714  
FFELP Consolidation Loans (net of allowance for losses of $68,880 and $56,949, respectively)
    79,911,599       68,378,560  
Private Education Loans (net of allowance for losses of $2,035,034 and $1,443,440, respectively)
    35,541,640       22,753,462  
Investments:
               
Available-for-sale
    203,125       1,273,275  
Other
    913,986       740,553  
                 
Total investments
    1,117,111       2,013,828  
Cash and cash equivalents
    5,875,510       6,070,013  
Restricted cash and investments
    5,837,546       5,168,871  
Retained Interest in off-balance sheet securitized loans
          1,828,075  
Goodwill and acquired intangible assets, net
    488,220       1,177,310  
Other assets
    10,653,449       9,920,591  
                 
Total assets
  $ 206,106,774     $ 169,985,298  
                 
Liabilities
               
Short-term borrowings
  $ 45,388,432     $ 30,896,811  
Long-term borrowings
    153,003,935       130,546,272  
Other liabilities
    3,140,330       3,263,593  
                 
Total liabilities
    201,532,697       164,706,676  
                 
Commitments and contingencies
               
Equity
               
Preferred stock, par value $.20 per share, 20,000 shares authorized:
               
Series A: 3,300 and 3,300 shares, respectively, issued at stated value of $50 per share
    165,000       165,000  
Series B: 4,000 and 4,000 shares, respectively, issued at stated value of $100 per share
    400,000       400,000  
Series C: 7.25% mandatory convertible preferred stock; 810 and 810 shares, respectively, issued at liquidation preference of $1,000 per share
    810,370       810,370  
Common stock, par value $.20 per share, 1,125,000 shares authorized: 553,787 and 552,220 shares issued, respectively
    110,758       110,444  
Additional paid-in capital
    5,127,313       5,090,891  
Accumulated other comprehensive loss (net of tax benefit of $25,386 and $23,448, respectively)
    (44,159 )     (40,825 )
Retained earnings (loss)
    (122,565 )     604,467  
                 
Total SLM Corporation stockholders’ equity before treasury stock
    6,446,717       7,140,347  
Common stock held in treasury at cost: 68,011 and 67,222 shares, respectively
    1,872,640       1,861,738  
                 
Total SLM Corporation stockholders’ equity
    4,574,077       5,278,609  
Noncontrolling interest
          13  
                 
Total equity
    4,574,077       5,278,622  
                 
Total liabilities and equity
  $ 206,106,774     $ 169,985,298  
                 
 
Supplemental information — assets and liabilities of consolidated variable interest entities:
 
                 
    September 30,
    December 31,
 
    2010     2009  
 
FFELP Stafford and Other Student Loans, net
  $ 65,557,473     $ 51,067,680  
FFELP Consolidation Loans, net
    78,396,367       67,664,019  
Private Education Loans, net
    24,511,699       10,107,298  
Restricted cash and investments
    5,522,584       4,596,147  
Other assets
    4,373,606       3,639,918  
Short-term borrowings
    36,806,456       23,384,051  
Long-term borrowings
    128,473,542       101,012,628  
                 
Net assets of consolidated variable interest entities
  $ 13,081,731     $ 12,678,383  
                 
 
See accompanying notes to consolidated financial statements.


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Table of Contents

SLM CORPORATION

CONSOLIDATED STATEMENTS OF INCOME
(Dollars and shares in thousands, except per share amounts)
(Unaudited)
 
                                 
    Three Months Ended September 30,     Nine Months Ended September 30,  
    2010     2009     2010     2009  
 
Interest income:
                               
FFELP Stafford and Other Student Loans
  $ 320,234     $ 303,192     $ 928,713     $ 969,947  
FFELP Consolidation Loans
    564,586       481,592       1,638,831       1,431,644  
Private Education Loans
    610,893       396,339       1,751,387       1,176,399  
Other loans
    7,190       11,042       23,440       45,930  
Cash and investments
    7,630       6,881       18,878       19,896  
                                 
Total interest income
    1,510,533       1,199,046       4,361,249       3,643,816  
Total interest expense
    638,599       673,870       1,738,916       2,519,876  
                                 
Net interest income
    871,934       525,176       2,622,333       1,123,940  
Less: provisions for loan losses
    358,110       321,127       1,099,469       849,518  
                                 
Net interest income after provisions for loan losses
    513,824       204,049       1,522,864       274,422  
                                 
Other income (loss):
                               
Securitization servicing and Residual Interest revenue
          155,065             147,248  
Gains on sales of loans and securities, net
    1,607       12,452       6,745       12,752  
Gains (losses) on derivative and hedging activities, net
    (344,458 )     (111,556 )     (331,552 )     (569,326 )
Contingency fee revenue
    83,746       82,200       252,238       230,383  
Collections revenue
    13,097       21,241       52,282       88,830  
Guarantor servicing fees
    15,996       48,087       74,543       106,867  
Other
    90,502       150,006       445,811       741,229  
                                 
Total other income (loss)
    (139,510 )     357,495       500,067       757,983  
                                 
Expenses:
                               
Salaries and benefits
    139,099       140,888       429,716       413,813  
Other operating expenses
    180,120       162,242       544,621       473,195  
Goodwill and acquired intangible assets impairment and amortization expense
    669,668       9,774       689,090       29,176  
Restructuring expenses
    11,082       2,492       55,030       9,598  
                                 
Total expenses
    999,969       315,396       1,718,457       925,782  
                                 
Income (loss) from continuing operations, before income tax expense (benefit)
    (625,655 )     246,148       304,474       106,623  
Income tax expense (benefit)
    (127,558 )     80,423       224,340       31,796  
                                 
Net income (loss) from continuing operations
    (498,097 )     165,725       80,134       74,827  
Income (loss) from discontinued operations, net of tax
    3,211       (6,417 )     3,211       (59,133 )
                                 
Net income (loss)
    (494,886 )     159,308       83,345       15,694  
Less: net income attributable to noncontrolling interest
    61       198       334       690  
                                 
Net income (loss) attributable to SLM Corporation
    (494,947 )     159,110       83,011       15,004  
Preferred stock dividends
    18,787       42,627       56,176       94,822  
                                 
Net income (loss) attributable to SLM Corporation common stock
  $ (513,734 )   $ 116,483     $ 26,835     $ (79,818 )
                                 
                                 
Net income (loss) attributable to SLM Corporation:
                               
Continuing operations, net of tax
  $ (498,158 )   $ 165,527     $ 79,800     $ 74,137  
Discontinued operations, net of tax
    3,211       (6,417 )     3,211       (59,133 )
                                 
Net income (loss) attributable to SLM Corporation
  $ (494,947 )   $ 159,110     $ 83,011     $ 15,004  
                                 
Basic earnings (loss) per common share attributable to SLM Corporation common shareholders:
                               
Continuing operations
  $ (1.07 )   $ .26     $ .05     $ (.04 )
Discontinued operations
    .01       (.01 )     .01       (.13 )
                                 
Total
  $ (1.06 ).   $ .25     $ .06     $ (.17 )
                                 
Average common shares outstanding
    484,936       470,280       484,678       467,960  
                                 
Diluted earnings (loss) per common share attributable to SLM Corporation common shareholders:
                               
Continuing operations
  $ (1.07 )   $ .26     $ .05     $ (.04 )
Discontinued operations
    .01       (.01 )     .01       (.13 )
                                 
Total
  $ (1.06 )   $ .25     $ .06     $ (.17 )
                                 
Average common and common equivalent shares outstanding
    484,936       471,058       486,209       467,960  
                                 
Dividends per common share attributable to SLM Corporation common shareholders
  $     $     $     $  
                                 
 
See accompanying notes to consolidated financial statements.


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Table of Contents

 
SLM CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Dollars in thousands, except share and per share amounts)
(Unaudited)
 
                                                                                                         
                                              Accumulated
                               
    Preferred
                                  Additional
    Other
                Total
             
    Stock
    Common Stock Shares     Preferred
    Common
    Paid-In
    Comprehensive
    Retained
    Treasury
    Stockholders’
    Noncontrolling
    Total
 
    Shares     Issued     Treasury     Outstanding     Stock     Stock     Capital     Income (Loss)     Earnings     Stock     Equity     Interest     Equity  
 
Balance at June 30, 2009
    8,449,770       534,841,879       (67,128,199 )     467,713,680     $ 1,714,770     $ 106,969     $ 4,709,053     $ (48,683 )   $ 229,865     $ (1,860,440 )   $ 4,851,534     $ 5     $ 4,851,539  
Comprehensive income:
                                                                                                       
Net income (loss)
                                                                    159,110               159,110       198       159,308  
Other comprehensive income (loss), net of tax:
                                                                                                       
Change in unrealized gains (losses) on investments, net of tax
                                                            1,420                       1,420               1,420  
Change in unrealized gains (losses) on derivatives, net of tax
                                                            3,346                       3,346               3,346  
Defined benefit pension plans adjustment
                                                            (226 )                     (226 )             (226 )
                                                                                                         
Comprehensive income (loss)
                                                                                    163,650       198       163,848  
Cash dividends:
                                                                                                       
Preferred stock, series A ($.87 per share)
                                                                    (2,875 )             (2,875 )             (2,875 )
Preferred stock, series B ($.34 per share)
                                                                    (1,299 )             (1,299 )             (1,299 )
Preferred stock, series C ($18.13 per share)
                                                                    (17,906 )             (17,906 )             (17,906 )
Restricted stock dividend
                                                                    (1 )             (1 )             (1 )
Issuance of common shares
            15,048               15,048               (5 )     279                               274               274  
Preferred stock issuance costs and related amortization
                                                    164               (164 )                            
Conversion of preferred shares
    (137,400 )     6,992,368               6,992,368       (137,400 )     1,398       146,423               (20,383 )             (9,962 )             (9,962 )
Tax benefit related to employee stock option and purchase plans
                                                    (2,843 )                             (2,843 )             (2,843 )
Stock-based compensation cost
                                                    8,995                               8,995               8,995  
Repurchase of common shares:
                                                                                                       
Benefit plans
                    (30,876 )     (30,876 )                                             (549 )     (549 )             (549 )
Noncontrolling interest — other
                                                                                          (196 )     (196 )
                                                                                                         
Balance at September 30, 2009
    8,312,370       541,849,295       (67,159,075 )     474,690,220     $ 1,577,370     $ 108,362     $ 4,862,071     $ (44,143 )   $ 346,347     $ (1,860,989 )   $ 4,989,018     $ 7     $ 4,989,025  
                                                                                                         
Balance at June 30, 2010
    8,110,370       553,571,384       (67,774,802 )     485,796,582     $ 1,375,370     $ 110,715     $ 5,122,583     $ (43,333 )   $ 391,169     $ (1,869,760 )   $ 5,086,744     $ 4     $ 5,086,748  
Comprehensive income:
                                                                                                       
Net income (loss)
                                                                    (494,947 )             (494,947 )     61       (494,886 )
Other comprehensive income (loss), net of tax:
                                                                                                       
Change in unrealized gains (losses) on investments, net of tax
                                                            (71 )                     (71 )             (71 )
Change in unrealized gains (losses) on derivatives, net of tax
                                                            (732 )                     (732 )             (732 )
Defined benefit pension plans adjustment
                                                            (23 )                     (23 )             (23 )
                                                                                                         
Comprehensive income
                                                                                    (495,773 )     61       (495,712 )
Cash dividends:
                                                                                                       
Preferred stock, series A ($.87 per share)
                                                                    (2,875 )             (2,875 )             (2,875 )
Preferred stock, series B ($.32 per share)
                                                                    (1,224 )             (1,224 )             (1,224 )
Preferred stock, series C ($18.13 per share)
                                                                    (14,688 )             (14,688 )             (14,688 )
Restricted stock dividend
                                                                                                       
Issuance of common shares
            215,962               215,962               43       2,417                               2,460               2,460  
Tax benefit related to employee stock option and purchase plans
                                                    (2,883 )                             (2,883 )             (2,883 )
Stock-based compensation cost
                                                    5,196                               5,196               5,196  
Repurchase of common shares:
                                                                                                       
Benefit plans
                    (236,005 )     (236,005 )                                             (2,880 )     (2,880 )             (2,880 )
Noncontrolling interest — other
                                                                                          (65 )     (65 )
                                                                                                         
Balance at September 30, 2010
    8,110,370       553,787,346       (68,010,807 )     485,776,539     $ 1,375,370     $ 110,758     $ 5,127,313     $ (44,159 )   $ (122,565 )   $ (1,872,640 )   $ 4,574,077     $     $ 4,574,077  
                                                                                                         
 
See accompanying notes to consolidated financial statements.


4


Table of Contents

 
SLM CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Dollars in thousands, except share and per share amounts)
(Unaudited)
 
                                                                                                         
                                              Accumulated
                               
    Preferred
                                  Additional
    Other
                Total
             
    Stock
    Common Stock Shares     Preferred
    Common
    Paid-In
    Comprehensive
    Retained
    Treasury
    Stockholders’
    Noncontrolling
    Total
 
    Shares     Issued     Treasury     Outstanding     Stock     Stock     Capital     Income (Loss)     Earnings     Stock     Equity     Interest     Equity  
 
Balance at December 31, 2008
    8,449,770       534,411,271       (66,958,400 )     467,452,871     $ 1,714,770     $ 106,883     $ 4,684,112     $ (76,476 )   $ 426,175     $ (1,856,394 )   $ 4,999,070     $ 7,270     $ 5,006,340  
Comprehensive income:
                                                                                                       
Net income (loss)
                                                                    15,004               15,004       690       15,694  
Other comprehensive income (loss), net of tax:
                                                                                                       
Change in unrealized gains (losses) on investments, net of tax
                                                            3,689                       3,689               3,689  
Change in unrealized gains (losses) on derivatives, net of tax
                                                            29,361                       29,361               29,361  
Defined benefit pension plans adjustment
                                                            (717 )                     (717 )             (717 )
                                                                                                         
Comprehensive income (loss)
                                                                                    47,337       690       48,027  
Cash dividends:
                                                                                                       
Preferred stock, series A ($2.61 per share)
                                                                    (8,625 )             (8,625 )             (8,625 )
Preferred stock, series B ($1.51 per share)
                                                                    (5,742 )             (5,742 )             (5,742 )
Preferred stock, series C ($54.38 per share)
                                                                    (59,586 )             (59,586 )             (59,586 )
Restricted stock dividend
                                                                    (10 )             (10 )             (10 )
Issuance of common shares
            445,656       98       445,754               81       2,505                       5       2,591               2,591  
Preferred stock issuance costs and related amortization
                                                    486               (486 )                            
Conversion of preferred shares
    (137,400 )     6,992,368               6,992,368       (137,400 )     1,398       146,423               (20,383 )             (9,962 )             (9,962 )
Tax benefit related to employee stock option and purchase plans
                                                    (8,662 )                             (8,662 )             (8,662 )
Stock-based compensation cost
                                                    37,207                               37,207               37,207  
Repurchase of common shares:
                                                                                                       
Benefit plans
                    (200,773 )     (200,773 )                                             (4,600 )     (4,600 )             (4,600 )
Sale of international Purchased Paper — Non-Mortgage business
                                                                                          (7,257 )     (7,257 )
Noncontrolling interest — other
                                                                                          (696 )     (696 )
                                                                                                         
Balance at September 30, 2009
    8,312,370       541,849,295       (67,159,075 )     474,690,220     $ 1,577,370     $ 108,362     $ 4,862,071     $ (44,143 )   $ 346,347     $ (1,860,989 )   $ 4,989,018     $ 7     $ 4,989,025  
                                                                                                         
Balance at December 31, 2009
    8,110,370       552,219,576       (67,221,942 )     484,997,634     $ 1,375,370     $ 110,444     $ 5,090,891     $ (40,825 )   $ 604,467     $ (1,861,738 )   $ 5,278,609     $ 13     $ 5,278,622  
Comprehensive income:
                                                                                                       
Net income (loss)
                                                                    83,011               83,011       334       83,345  
Other comprehensive income, net of tax:
                                                                                                       
Change in unrealized gains (losses) on investments, net of tax
                                                            1,607                       1,607               1,607  
Change in unrealized gains (losses) on derivatives, net of tax
                                                            (4,883 )                     (4,883 )             (4,883 )
Defined benefit pension plans adjustment
                                                            (58 )                     (58 )             (58 )
                                                                                                         
Comprehensive income
                                                                                    79,677       334       80,011  
Cash dividends:
                                                                                                       
Preferred stock, series A ($2.61 per share)
                                                                    (8,625 )             (8,625 )             (8,625 )
Preferred stock, series B ($.80 per share)
                                                                    (3,193 )             (3,193 )             (3,193 )
Preferred stock, series C ($54.38 per share)
                                                                    (44,064 )             (44,064 )             (44,064 )
Restricted stock dividend
                                                                    (11 )             (11 )             (11 )
Issuance of common shares
            1,567,770               1,567,770               314       12,583                               12,897               12,897  
Preferred stock issuance costs and related amortization
                                                    294               (294 )                            
Tax benefit related to employee stock option and purchase plans
                                                    (7,688 )                             (7,688 )             (7,688 )
Stock-based compensation cost
                                                    31,233                               31,233               31,233  
Cumulative effect of accounting change (See Note 1)
                                                                    (753,856 )             (753,856 )             (753,856 )
Repurchase of common shares:
                                                                                                       
Benefit plans
                    (788,865 )     (788,865 )                                             (10,902 )     (10,902 )             (10,902 )
Noncontrolling interest — other
                                                                                          (347 )     (347 )
                                                                                                         
Balance at September 30, 2010
    8,110,370       553,787,346       (68,010,807 )     485,776,539     $ 1,375,370     $ 110,758     $ 5,127,313     $ (44,159 )   $ (122,565 )   $ (1,872,640 )   $ 4,574,077     $     $ 4,574,077  
                                                                                                         
 
See accompanying notes to consolidated financial statements.
 


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Table of Contents

SLM CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
 
                 
    Nine Months Ended
 
    September 30,  
    2010     2009  
 
Operating activities
               
Net income
  $ 83,345     $ 15,694  
Adjustments to reconcile net income to net cash used in operating activities:
               
(Income) loss from discontinued operations, net of tax
    (3,211 )     59,133  
Gains on sales of loans and securities, net
    (6,745 )     (12,752 )
Goodwill and acquired intangible assets impairment and amortization expense
    689,090       29,176  
Stock-based compensation cost
    31,392       40,073  
Unrealized (gains)/losses on derivative and hedging activities
    (305,683 )     491,644  
Provisions for loan losses
    1,099,469       849,518  
Student loans originated for sale, net
    (10,959,847 )     (15,846,043 )
Decrease in restricted cash — other
    48,003       44,201  
(Increase) decrease in accrued interest receivable
    (327,782 )     241,377  
Increase (decrease) in accrued interest payable
    16,724       (439,920 )
Adjustment for non-cash loss related to Retained Interest
          333,951  
Decrease in other assets
    1,057,515       3,096  
(Decrease) increase in other liabilities
    (74,842 )     40,870  
                 
Cash used in operating activities — continuing operations
    (8,735,917 )     (14,165,676 )
Cash provided by operating activities — discontinued operations
          233,130  
                 
Total net cash used in operating activities
    (8,652,572 )     (13,916,852 )
                 
Investing activities
               
Student loans acquired
    (6,762,110 )     (7,211,675 )
Loans purchased from securitized trusts
          (5,030 )
Reduction of student loans:
               
Installment payments, claims and other
    10,486,310       7,997,484  
Proceeds from sales of student loans
    359,955       515,140  
Other loans — originated
          (2,818 )
Other loans — repaid
    117,630       237,980  
Other investing activities, net
    (172,218 )     (676,612 )
Purchases of available-for-sale securities
    (31,801,767 )     (104,663,811 )
Proceeds from sales of available-for-sale securities
          100,056  
Proceeds from maturities of available-for-sale securities
    32,834,424       104,417,273  
Purchases of other securities
    (101,008 )      
Proceeds from maturities of held-to-maturity securities and other securities
    111,200       68,991  
Return of investment from Retained Interest
          16,361  
Decrease (increase) in restricted cash — on-balance sheet trusts
    147,195       (1,318,410 )
                 
Net cash provided by (used in) investing activities
    5,219,611       (525,071 )
                 
Financing activities
               
Borrowings collateralized by loans in trust — issued
    5,918,441       11,572,592  
Borrowings collateralized by loans in trust — repaid
    (8,245,191 )     (4,196,889 )
Asset-backed commercial paper conduits, net
    (2,308,644 )     (15,504,025 )
ED Participation Program, net
    11,219,632       15,499,015  
ED Conduit Program facility, net
    1,112,730       14,189,923  
Other short-term borrowings issued
          298,294  
Other short-term borrowings repaid
    (176,551 )     (1,198,661 )
Other long-term borrowings issued
    1,463,542       4,333,173  
Other long-term borrowings repaid
    (7,227,300 )     (8,335,181 )
Other financing activities, net
    1,537,754       (1,006,261 )
Excess tax benefit from the exercise of stock-based awards
    367        
Common stock issued
    194       6  
Preferred dividends paid
    (55,882 )     (83,915 )
Noncontrolling interest, net
    (634 )     (9,152 )
                 
Net cash provided by financing activities
    3,238,458       15,558,919  
                 
Net (decrease) increase in cash and cash equivalents
    (194,503 )     1,116,996  
Cash and cash equivalents at beginning of period
    6,070,013       4,070,002  
                 
Cash and cash equivalents at end of period
  $ 5,875,510     $ 5,186,998  
                 
Cash disbursements made (refunds received) for:
               
Interest
  $ 1,762,789     $ 3,070,349  
                 
Income taxes, net
  $ (451,099 )   $ 292,115  
                 
 
See accompanying notes to consolidated financial statements.


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Table of Contents

SLM CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2010 and for the three and nine months ended
September 30, 2010 and 2009 is unaudited)
(Dollars in thousands, except per share amounts, unless otherwise noted)
 
1.   Significant Accounting Policies
 
Basis of Presentation
 
The accompanying unaudited, consolidated financial statements of SLM Corporation (the “Company” or “Sallie Mae”) have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. In the opinion of management, all adjustments considered necessary for a fair statement of the results for the interim periods have been included. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Operating results for the three and nine months ended September 30, 2010 are not necessarily indicative of the results for the year ending December 31, 2010. These unaudited financial statements should be read in conjunction with the audited financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 (the “2009 Form 10-K”).
 
Reclassifications
 
Certain reclassifications have been made to the balances as of and for the three and nine months ended September 30, 2009 to be consistent with classifications adopted for 2010, and had no effect on net income, total assets, or total liabilities.
 
Recently Issued Accounting Standards
 
Transfers of Financial Assets and the Variable Interest Entity (“VIE”) Consolidation Model
 
In June 2009, the Financial Accounting Standards Board (“FASB”) issued topic updates to Accounting Standards Codification (“ASC”) 860, “Transfers and Servicing,” and to ASC 810, “Consolidation.”
 
The topic update to ASC 860, among other things, (1) eliminates the concept of a qualifying special purpose entity (“QSPE”), (2) changes the requirements for derecognizing financial assets, (3) changes the amount of the recognized gain/loss on a transfer accounted for as a sale when beneficial interests are received by the transferor, and (4) requires additional disclosure. The topic update to ASC 860 is effective for transactions which occur after December 31, 2009. The impact of ASC 860 to future transactions will depend on how such transactions are structured. ASC 860 relates primarily to the Company’s secured borrowing facilities. All of the Company’s secured borrowing facilities entered into in 2008 and 2009, including securitization trusts, have been accounted for as on-balance sheet financing facilities. These transactions would have been accounted for in the same manner if ASC 860 had been effective during these years.
 
The topic update to ASC 810 significantly changes the consolidation model for variable interest entities (“VIEs”). The topic update amends ASC 810 and, among other things, (1) eliminates the exemption for QSPEs, (2) provides a new approach for determining which entity should consolidate a VIE that is more focused on control rather than economic interest, (3) changes when it is necessary to reassess who should consolidate a VIE and (4) requires additional disclosure. The topic update to ASC 810 is effective as of January 1, 2010.
 
Under ASC 810, if an entity has a variable interest in a VIE and that entity is determined to be the primary beneficiary of the VIE then that entity will consolidate the VIE. The primary beneficiary is the entity which has both: (1) the power to direct the activities of the VIE that most significantly impact the VIE’s


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Table of Contents

SLM CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2010 and for the three and nine months ended
September 30, 2010 and 2009 is unaudited)
(Dollars in thousands, except per share amounts, unless otherwise noted)
 
1.   Significant Accounting Policies (Continued)
 
economic performance and (2) the obligation to absorb losses or receive benefits of the entity that could potentially be significant to the VIE. As it relates to the Company’s securitized assets, the Company is the servicer of the securitized assets and owns the Residual Interest of the securitization trusts. As a result, the Company is the primary beneficiary of its securitization trusts and consolidated those trusts that were previously off-balance sheet at their historical cost basis on January 1, 2010. The historical cost basis is the basis that would exist if these securitization trusts had remained on-balance sheet since they settled. ASC 810 did not change the accounting of any other VIEs the Company had a variable interest in as of January 1, 2010. These new accounting rules will also apply to new transactions entered into from January 1, 2010 forward.
 
Upon prospective adoption of topic updates to ASC 810, the Company removed the $1.8 billion of Residual Interests (associated with its previously off-balance sheet securitization trusts as of December 31, 2009) from the consolidated balance sheet and the Company consolidated $35.0 billion of assets ($32.6 billion of which are student loans, net of an approximate $550 million allowance for loan loss) and $34.4 billion of liabilities (primarily trust debt), which resulted in an approximate $750 million after-tax reduction of stockholders’ equity (recorded as a cumulative effect adjustment to retained earnings). After the adoption of topic updates to ASC 810, the Company’s results of operations no longer reflect securitization servicing and Residual Interest revenue related to these securitization trusts, but instead report interest income, provisions for loan losses associated with the securitized assets and interest expense associated with the debt issued from the securitization trusts to third parties, consistent with the Company’s accounting treatment of prior on-balance securitization trusts. As of January 1, 2010, there are no longer differences between the Company’s GAAP and “Core Earnings” presentation for securitization accounting. As a result, effective January 1, 2010, the Company’s Managed and on-balance sheet (GAAP) student loan portfolios are the same.


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Table of Contents

SLM CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2010 and for the three and nine months ended
September 30, 2010 and 2009 is unaudited)
(Dollars in thousands, except per share amounts, unless otherwise noted)
 
1.   Significant Accounting Policies (Continued)
 
The following table summarizes the change in the consolidated balance sheet resulting from the consolidation of the off-balance sheet securitization trusts following the adoption of topic updates to ASC 810.
 
         
    At January 1,
 
(Dollars in millions)   2010  
 
FFELP Stafford Loans (net of allowance of $15)
  $ 5,500  
FFELP Consolidation Loans (net of allowance of $10)
    14,797  
Private Education Loans (net of allowance of $524)
    12,341  
         
Total student loans
    32,638  
Restricted cash and investments
    1,041  
Other assets
    1,370  
         
Total assets consolidated
    35,049  
         
Long-term borrowings
    34,403  
Other liabilities
    6  
         
Total liabilities consolidated
    34,409  
         
Net assets consolidated on-balance sheet
    640  
Less: Residual Interest removed from balance sheet
    1,828  
         
Cumulative effect of accounting change before taxes
    (1,188 )
         
Tax effect
    434  
         
Cumulative effect of accounting change after taxes
  $ (754 )
         
 
Management allocates capital on a Managed Basis. As a result, this accounting change did not affect management’s view of capital adequacy for the Company. The Company’s unsecured revolving credit facility and its asset-backed credit facilities contain two principal financial covenants related to tangible net worth and net revenue. The tangible net worth covenant requires the Company to maintain consolidated tangible net worth of at least $1.38 billion at all times. Consolidated tangible net worth as calculated for purposes of this covenant was $3.5 billion as of December 31, 2009. Upon adoption of topic updates to ASC 810 on January 1, 2010, consolidated tangible net worth as calculated for this covenant was $2.7 billion. Because the transition adjustment upon adoption of topic updates to ASC 810 is recorded through retained earnings, the net revenue covenant was not affected by the adoption of topic updates to ASC 810. The ongoing net revenue covenant will not be affected by ASC 810’s impact on the Company’s securitization trusts as the net revenue covenant treated all off-balance sheet trusts as on-balance sheet for purposes of calculating net revenue.
 
Fair Value Measurements
 
In January 2010, the FASB issued a topic update to ASC 820, “Fair Value Measurements and Disclosures.” The update requires separate disclosures of the amounts of significant transfers in and out of Level 1 and 2 of fair value measurements and a description of the reasons for the transfers. In addition, a reporting unit should report separately information about purchases, sales, issuances, and settlements within the reconciliation of activity in Level 3 fair value measurements. Finally, the update clarifies existing disclosure requirements regarding the level of disaggregation in reporting classes of assets and liabilities and discussion of the inputs and valuation techniques used for Level 2 and 3 fair values. This topic update is


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SLM CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2010 and for the three and nine months ended
September 30, 2010 and 2009 is unaudited)
(Dollars in thousands, except per share amounts, unless otherwise noted)
 
1.   Significant Accounting Policies (Continued)
 
effective for annual and interim periods beginning January 1, 2010, except for disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for annual and interim periods beginning January 1, 2011.
 
Disclosures Regarding Credit Quality of Receivables
 
In July 2010, the FASB issued an update to the accounting guidance for receivables. This update requires companies to provide additional disclosures about the credit quality of receivables as well as additional information related to the allowance for loan losses. These new rules are effective for the Company’s annual reporting period ending December 31, 2010. Other than requiring additional disclosures regarding the credit quality of its loan portfolio, this standard will not have an impact on the Company’s financial statements.
 
2.   Allowance for Loan Losses
 
The Company’s provisions for loan losses represent the periodic expense of maintaining an allowance sufficient to absorb probable incurred losses, net of expected recoveries, in the held-for-investment loan portfolios. The evaluation of the provisions for loan losses is inherently subjective as it requires material estimates that are susceptible to significant changes. The Company believes that the allowance for loan losses is appropriate to cover probable losses incurred in the loan portfolios as of the respective balance sheet date.
 
The following table summarizes the total loan loss provisions for the three and nine months ended September 30, 2010 and 2009.
 
                                 
    Three Months Ended
    Nine Months Ended
 
    September 30,     September 30,  
    2010     2009     2010     2009  
 
Private Education Loans
  $ 329,981     $ 287,315     $ 1,004,214     $ 732,619  
FFELP Stafford and Other Student Loans
    24,582       20,918       76,191       80,911  
Mortgage and consumer loans
    3,547       12,894       19,064       35,988  
                                 
Total provisions for loan losses
  $ 358,110     $ 321,127     $ 1,099,469     $ 849,518  
                                 


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SLM CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2010 and for the three and nine months ended
September 30, 2010 and 2009 is unaudited)
(Dollars in thousands, except per share amounts, unless otherwise noted)
 
2.   Allowance for Loan Losses (Continued)
 
Allowance for Private Education Loan Losses
 
The following table summarizes changes in the allowance for loan losses for Private Education Loans for the three and nine months ended September 30, 2010 and 2009.
 
                                 
    Three Months Ended September 30,     Nine Months Ended September 30,  
    2010     2009     2010     2009  
 
Allowance at beginning of period
  $ 2,042,413     $ 1,396,707     $ 1,443,440     $ 1,308,043  
Provision for Private Education Loan losses
    329,981       287,315       1,004,214       732,619  
Charge-offs
    (348,511 )     (292,845 )     (968,755 )     (670,603 )
Reclassification of interest reserve
    11,151       10,319       32,085       31,437  
Consolidation of off-balance sheet trusts(1)
                524,050        
                                 
Allowance at end of period
  $ 2,035,034     $ 1,401,496     $ 2,035,034     $ 1,401,496  
                                 
Charge-offs as a percentage of average loans in repayment (annualized)
    5.4 %     9.6 %     5.1 %     7.7 %
Charge-offs as a percentage of average loans in repayment and forbearance (annualized)
    5.1 %     8.9 %     4.9 %     7.1 %
Allowance as a percentage of the ending total loan balance
    5.3 %     5.7 %     5.3 %     5.7 %
Allowance as a percentage of ending loans in repayment
    7.9 %     11.4 %     7.9 %     11.4 %
Allowance coverage of charge-offs (annualized)
    1.5       1.2       1.6       1.6  
Ending total loans(2)
  $ 38,449,556     $ 24,439,749     $ 38,449,556     $ 24,439,749  
Average loans in repayment
  $ 25,616,442     $ 12,082,965     $ 25,150,567     $ 11,633,640  
Ending loans in repayment
  $ 25,784,202     $ 12,254,212     $ 25,784,202     $ 12,254,212  
 
 
(1) Upon the adoption of topic updates to ASC 810 on January 1, 2010, the Company consolidated all of its previously off-balance sheet securitization trusts. (See Note 1, “Significant Accounting Policies — Recently Issued Accounting Standards — Transfers of Financial Assets and the VIE Consolidation Model” for further discussion.)
 
(2) Ending total loans represents gross Private Education Loans, plus the receivable for partially charged-off loans.


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SLM CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2010 and for the three and nine months ended
September 30, 2010 and 2009 is unaudited)
(Dollars in thousands, except per share amounts, unless otherwise noted)
 
2.   Allowance for Loan Losses (Continued)
 
 
Private Education Loan Delinquencies
 
The table below presents the Company’s Private Education Loan delinquency trends as of September 30, 2010, December 31, 2009, and September 30, 2009.
 
                                                 
    Private Education Loan Delinquencies  
    September 30,
          September 30,
 
    2010     December 31, 2009     2009  
(Dollars in millions)   Balance     %     Balance     %     Balance     %  
 
Loans in-school/grace/deferment(1)
  $ 10,517             $ 8,910             $ 10,899          
Loans in forbearance(2)
    1,170               967               851          
Loans in repayment and percentage of each status:
                                               
Loans current
    22,926       88.9 %     12,421       86.4 %     10,458       85.3 %
Loans delinquent 31-60 days(3)
    907       3.5       647       4.5       551       4.5  
Loans delinquent 61-90 days(3)
    489       1.9       340       2.4       353       2.9  
Loans delinquent greater than 90 days(3)
    1,462       5.7       971       6.7       892       7.3  
                                                 
Total Private Education Loans in repayment
    25,784       100.0 %     14,379       100.0 %     12,254       100.0 %
                                                 
Total Private Education Loans, gross
    37,471               24,256               24,004          
Private Education Loan unamortized discount
    (873 )             (559 )             (543 )        
                                                 
Total Private Education Loans
    36,598               23,697               23,461          
Private Education Loan receivable for partially charged-off loans
    979               499               435          
Private Education Loan allowance for losses
    (2,035 )             (1,443 )             (1,401 )        
                                                 
Private Education Loans, net
  $ 35,542             $ 22,753             $ 22,495          
                                                 
Percentage of Private Education Loans in repayment
            68.8 %             59.3 %             51.1 %
                                                 
Delinquencies as a percentage of Private Education Loans in repayment
            11.1 %             13.6 %             14.7 %
                                                 
Loans in forbearance as a percentage of loans in repayment and forbearance
            4.3 %             6.3 %             6.5 %
                                                 
 
 
(1) Loans for borrowers who may be attending school or engaging in other permitted educational activities and are not yet required to make payments on their loans, e.g., residency periods for medical students or a grace period for bar exam preparation.
 
(2) Loans for borrowers who have requested extension of grace period generally during employment transition or who have temporarily ceased making full payments due to hardship or other factors, consistent with established loan program servicing policies and procedures.
 
(3) The period of delinquency is based on the number of days scheduled payments are contractually past due.


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SLM CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2010 and for the three and nine months ended
September 30, 2010 and 2009 is unaudited)
(Dollars in thousands, except per share amounts, unless otherwise noted)
 
2.   Allowance for Loan Losses (Continued)
 
 
Allowance for FFELP Loan Losses
 
The following table summarizes changes in the allowance for loan losses for the FFELP loan portfolio for the three and nine months ended September 30, 2010 and 2009.
 
                                 
    Three Months Ended
    Nine Months Ended
 
    September 30,     September 30,  
    2010     2009     2010     2009  
 
Allowance at beginning of period
  $ 188,685     $ 153,038     $ 161,168     $ 137,543  
Provision for FFELP loan losses
    24,582       20,918       76,191       80,911  
Charge-offs
    (21,273 )     (16,977 )     (66,912 )     (60,708 )
Decrease for student loan sales and other
    (2,728 )     (1,252 )     (6,330 )     (2,019 )
Consolidation of off-balance sheet trusts(1)
                25,149        
                                 
Allowance at end of period
  $ 189,266     $ 155,727     $ 189,266     $ 155,727  
                                 
Charge-offs as a percentage of average loans in repayment (annualized)
    .1 %     .1 %     .1 %     .1 %
Charge-offs as a percentage of average loans in repayment and forbearance (annualized)
    .1 %     .1 %     .1 %     .1 %
Allowance as a percentage of the ending total loan balance
    .1 %     .1 %     .1 %     .1 %
Allowance as a percentage of ending loans in repayment
    .2 %     .2 %     .2 %     .2 %
Allowance coverage of charge-offs (annualized)
    2.2       2.3       2.1       1.9  
Ending total loans, gross
  $ 144,090,015     $ 134,087,420     $ 144,090,015     $ 134,087,420  
Average loans in repayment
  $ 82,202,512     $ 69,679,688     $ 82,362,216     $ 69,195,627  
Ending loans in repayment
  $ 81,787,661     $ 69,832,792     $ 81,787,661     $ 69,832,792  
 
 
(1) Upon the adoption of topic updates to ASC 810 on January 1, 2010, the Company consolidated all of its previously off-balance sheet securitization trusts. (See Note 1, “Significant Accounting Policies — Recently Issued Accounting Standards - Transfers of Financial Assets and the VIE Consolidation Model” for further discussion.)
 
The Company maintains an allowance for Risk Sharing loan losses on its FFELP loan portfolio. The level of Risk Sharing has varied over the past few years with legislative changes. As of September 30, 2010, 49 percent of the FFELP loan portfolio was subject to 3 percent Risk Sharing, 50 percent was subject to 2 percent Risk Sharing and the remaining 1 percent was not subject to any Risk Sharing.


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SLM CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2010 and for the three and nine months ended
September 30, 2010 and 2009 is unaudited)
(Dollars in thousands, except per share amounts, unless otherwise noted)
 
2.   Allowance for Loan Losses (Continued)
 
FFELP Loan Delinquencies
 
The table below shows the Company’s FFELP loan delinquency trends as of September 30, 2010, December 31, 2009 and September 30, 2009.
 
                                                 
    FFELP Loan Delinquencies  
    September 30, 2010     December 31, 2009     September 30, 2009  
(Dollars in millions)   Balance     %     Balance     %     Balance     %  
 
Loans in-school/grace/deferment(1)
  $ 42,852             $ 35,079             $ 50,795          
Loans in forbearance(2)
    19,450               14,121               13,459          
Loans in repayment and percentage of each status:
                                               
Loans current
    67,867       83.0 %     57,528       82.4 %     57,934       83.0 %
Loans delinquent 31-60 days(3)
    5,054       6.2       4,250       6.1       4,225       6.0  
Loans delinquent 61-90 days(3)
    2,241       2.7       2,205       3.1       2,041       2.9  
Loans delinquent greater than 90 days(3)
    6,626       8.1       5,844       8.4       5,633       8.1  
                                                 
Total FFELP loans in repayment
    81,788       100.0 %     69,827       100.0 %     69,833       100.0 %
                                                 
Total FFELP loans, gross
    144,090               119,027               134,087          
FFELP loan unamortized premium
    2,692               2,187               2,419          
                                                 
Total FFELP loans
    146,782               121,214               136,506          
FFELP loan allowance for losses
    (189 )             (161 )             (156 )        
                                                 
FFELP loans, net
  $ 146,593             $ 121,053             $ 136,350          
                                                 
Percentage of FFELP loans in repayment
            56.8 %             58.7 %             52.1 %
                                                 
Delinquencies as a percentage of FFELP loans in repayment
            17.0 %             17.6 %             17.0 %
                                                 
FFELP loans in forbearance as a percentage of loans in repayment and forbearance
            19.2 %             16.8 %             16.2 %
                                                 
 
 
(1) Loans for borrowers who may be attending school or engaging in other permitted educational activities and are not yet required to make payments on the loans, e.g., residency periods for medical students or a grace period for bar exam preparation, as well as loans for borrowers who have requested extension of grace period during employment transition or who have temporarily ceased making full payments due to hardship or other factors.
 
(2) Loans for borrowers who have used their allowable deferment time or do not qualify for deferment, and need additional time to obtain employment or who have temporarily ceased making full payments due to hardship or other factors, consistent with the established loan program servicing policies and procedures.
 
(3) The period of delinquency is based on the number of days scheduled payments are contractually past due.


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SLM CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2010 and for the three and nine months ended
September 30, 2010 and 2009 is unaudited)
(Dollars in thousands, except per share amounts, unless otherwise noted)
 
3.   Investments
 
A summary of investments and restricted investments as of September 30, 2010 and December 31, 2009 follows:
 
                                 
    September 30, 2010  
          Gross
    Gross
       
    Amortized
    Unrealized
    Unrealized
    Fair
 
    Cost     Gains     Losses     Value  
 
Investments
                               
Available-for-sale:
                               
U.S. Treasury securities
  $ 1,014     $     $     $ 1,014  
Other securities:
                               
Asset-backed securities
    74,846       2,112             76,958  
Commercial paper and asset-backed commercial paper
    111,661                   111,661  
Municipal bonds
    9,558       2,440             11,998  
Other
    1,568             (74 )     1,494  
                                 
Total investment securities available-for-sale
  $ 198,647     $ 4,552     $ (74 )   $ 203,125  
                                 
Restricted Investments
                               
Available-for sale:
                               
U.S. Treasury securities
  $ 38,113     $     $     $ 38,113  
Guaranteed investment contracts
    29,456                   29,456  
                                 
Total restricted investments available-for-sale
  $ 67,569     $     $     $ 67,569  
                                 
Held-to-maturity:
                               
Guaranteed investment contracts
  $ 3,175     $     $     $ 3,175  
                                 
Total restricted investments held-to-maturity
  $ 3,175     $     $     $ 3,175  
                                 
 


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SLM CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2010 and for the three and nine months ended
September 30, 2010 and 2009 is unaudited)
(Dollars in thousands, except per share amounts, unless otherwise noted)
 
3.   Investments (Continued)
 
                                 
    December 31, 2009  
          Gross
    Gross
       
    Amortized
    Unrealized
    Unrealized
    Fair
 
    Cost     Gains     Losses     Value  
 
Investments
                               
Available-for-sale:
                               
U.S. Treasury securities
  $ 272     $     $     $ 272  
Other securities:
                               
Asset-backed securities
    110,336       306       (893 )     109,749  
Commercial paper and asset-backed commercial paper
    1,149,981                   1,149,981  
Municipal bonds
    9,935       1,942             11,877  
Other
    1,550             (154 )     1,396  
                                 
Total investment securities available-for-sale
  $ 1,272,074     $ 2,248     $ (1,047 )   $ 1,273,275  
                                 
Restricted Investments
                               
Available-for sale:
                               
U.S. Treasury securities
  $ 25,026     $     $     $ 25,026  
Guaranteed investment contracts
    26,951                   26,951  
                                 
Total restricted investments available-for-sale
  $ 51,977     $     $     $ 51,977  
                                 
Held-to-maturity:
                               
Guaranteed investment contracts
  $ 3,550     $     $     $ 3,550  
Other
    215                   215  
                                 
Total restricted investments held-to-maturity
  $ 3,765     $     $     $ 3,765  
                                 
 
In addition to the restricted investments detailed above, at September 30, 2010 and December 31, 2009, the Company had restricted cash and cash equivalents of $5.7 billion and $5.1 billion, respectively. As of September 30, 2010 and December 31, 2009, $38 million (all of which is in restricted cash and investments on the balance sheet) and $50 million ($25 million of which is in restricted cash and investments on the balance sheet), respectively, of available-for-sale investment securities were pledged as collateral.
 
There were no sales of investments, including available-for-sale securities, during the three and nine months ended September 30, 2010 and the three months ended September 30, 2009. In the nine months ended September 30, 2009, the Company sold available-for-sale securities with a fair value of $100 million, resulting in no realized gain or loss. The cost basis for the security sale was determined through specific identification of the securities sold.

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SLM CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2010 and for the three and nine months ended
September 30, 2010 and 2009 is unaudited)
(Dollars in thousands, except per share amounts, unless otherwise noted)
 
3.   Investments (Continued)
 
As of September 30, 2010, the stated maturities for the investments (including restricted investments) are as follows:
 
                         
    September 30, 2010  
    Held-to-
    Available-for-
       
    Maturity     Sale(1)     Other  
 
Year of Maturity
                       
2010
  $     $ 152,281     $ 874,497  
2011
                4,878  
2012
                 
2013
          528        
2014
                 
2015-2019
          11,998       57,974  
After 2019
    3,175       105,887       869  
                         
Total
  $ 3,175     $ 270,694     $ 938,218  
                         
 
 
(1) Available-for-sale securities are stated at fair value.
 
At September 30, 2010 and December 31, 2009, the Company also had other investments of $938 million and $741 million, respectively. At September 30, 2010 and December 31, 2009, other investments included $850 million and $636 million, respectively, of receivables for cash collateral posted with derivative counterparties. Other investments also included leveraged leases which at September 30, 2010 and December 31, 2009, totaled $58 million and $66 million, respectively, that are general obligations of American Airlines and Federal Express Corporation.
 
4.   Goodwill and Acquired Intangible Assets
 
Goodwill
 
All acquisitions must be assigned to a reporting unit or units. A reporting unit is the same as, or one level below, an operating segment. The following table summarizes the Company’s historical allocation of goodwill to its reporting units, accumulated impairments and net goodwill for each reporting unit.
 
                         
    As of September 30, 2010  
          Accumulated
       
(Dollars in millions)   Gross     Impairments     Net  
 
Lending
  $ 411     $ (24 )   $ 387  
Asset Performance Group (“APG”)
    402       (402 )      
Guarantor Servicing
    62       (62 )      
Upromise
    140       (140 )      
Other
    1       (1 )      
                         
Total
  $ 1,016     $ (629 )   $ 387  
                         
 


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SLM CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2010 and for the three and nine months ended
September 30, 2010 and 2009 is unaudited)
(Dollars in thousands, except per share amounts, unless otherwise noted)
 
4.   Goodwill and Acquired Intangible Assets (Continued)
 
                         
    December 31, 2009  
          Accumulated
       
(Dollars in millions)   Gross     Impairments     Net  
 
Lending
  $ 411     $ (24 )   $ 387  
APG
    402             402  
Guarantor Servicing
    62             62  
Upromise
    140             140  
Other
    1       (1 )      
                         
Total
  $ 1,016     $ (25 )   $ 991  
                         
 
Impairment Testing
 
The Company performs its goodwill impairment testing annually in the fourth quarter or more frequently if an event occurs or circumstances change such that it is more likely than not that the fair value of a reporting unit or reporting units may be below their respective carrying values.
 
On March 30, 2010, President Obama signed into law H.R. 4872, the Health Care and Education Reconciliation Act of 2010 (“HCERA”), which included the SAFRA Act. Effective July 1, 2010, the legislation eliminated the authority to provide new loans under FFELP and requires that all new federal loans are to be made through the Direct Student Loan Program (“DSLP”). The new law does not alter or affect the terms and conditions of existing FFELP loans. This restructuring will result in both a significant amount of restructuring expenses incurred as well as a significant reduction of on-going operating costs once the restructuring is complete. See Note 13, “Restructuring Activities” for further details.
 
In connection with HCERA becoming law on March 30, 2010, a triggering event occurred for the Lending, APG and Guarantor Servicing reporting units which required the Company to assess potential goodwill impairment as of March 31, 2010. As part of the impairment assessment, the Company considered the implications of the HCERA legislation to these reporting units as well as continued uncertainty in the economy and the tight credit markets during the first quarter of 2010. The impairment assessment methodology utilized either a market approach and/or a discounted cash flow analysis for each reporting unit affected by the new HCERA legislation. This assessment resulted in estimated fair values of the Company’s reporting units in excess of their carrying values at March 31, 2010. Accordingly, there was no indicated impairment for these reporting units in the first quarter of 2010.
 
When the Company performed its annual impairment assessment in the fourth quarter of 2009, the cash flow projections for the Lending, APG and Guarantor Servicing reporting units were valued assuming the proposed HCERA legislation was passed. There was no indicated impairment for any of the reporting units in the fourth quarter of 2009.
 
During the second quarter of 2010, no triggering event occurred to warrant an interim impairment assessment.
 
During the third quarter of 2010, as part of a broad-based assessment of possible changes to the Company’s business following the passage of HCERA the Company performed certain preliminary valuations which indicated there was possible impairment of goodwill and certain intangible assets in its Lending, APG, Upromise and Guarantor Servicing reporting units. The Company identified certain events that occurred during third quarter 2010 that it determined were triggering events because they either resulted in lower expected

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SLM CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2010 and for the three and nine months ended
September 30, 2010 and 2009 is unaudited)
(Dollars in thousands, except per share amounts, unless otherwise noted)
 
4.   Goodwill and Acquired Intangible Assets (Continued)
 
future cash flows or because they provided indications that market participants would value the Company’s reporting units below previous estimates of fair value. The triggering events that occurred in the third quarter included:
 
  •  FFELP asset pricing information indicating market participants assume a greater uncertainty related to future cash flows and require a higher return on investment;
 
  •  market bids related to the sale of a non-affiliated Guarantor business indicated a higher discount rate and greater uncertainty of future cash flows assumed;
 
  •  the acquisition of FFELP assets by the Company that indicated a higher discount rate applied to future cash flows than previously estimated;
 
  •  Upromise sale of a business line that provided an indication of how market participants view risks associated with future cash flows;
 
  •  pricing pressures associated with new and existing business at the Upromise reporting unit; and
 
  •  uncertainties related to the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) legislation.
 
Because of the triggering events that occurred during the quarter and the preliminary assessment, the Company retained a third-party appraisal firm to perform Step 1 impairment testing as prescribed in ASC 350, “Intangibles — Goodwill and Other.” The fair value of each reporting unit was determined by weighting different valuation approaches, as applicable, with the primary approach being the income approach.
 
The income approach measures the value of each reporting unit’s future economic benefit determined by its discounted cash flows derived from the Company’s projections plus an assumed terminal growth rate adjusted for what it believes a market participant would assume in an acquisition. These projections are generally five-year projections that reflect the inherent risk a willing buyer would consider when valuing these businesses. If a component of a reporting unit is winding down or is assumed to wind down, the projections extend through the anticipated wind down period. These estimates may differ from how the Company views the prospective cash flows associated with the individual reporting units. As previously discussed, during the third quarter, new information regarding how market participants view the risks and uncertainties associated with future cash flows resulted in the Company adjusting down its forecasted cash flows and increasing the discount rates associated with these cash flows for the APG and Guarantor Servicing operating segments, resulting in a decline in value associated with these reporting units. With regard to Upromise,the Company determined that pricing pressures and certain risks associated with growing the business as well as the likelihood that a market participant would demand a higher discount rate and assume lower future expected cash flows than the Company’s own assumptions resulted in a decline in the fair value of this reporting unit.
 
Under the Company’s guidance, the third-party appraisal firm developed both an asset rate of return and an equity rate of return (or discount rate) for each reporting unit incorporating such factors as the risk free rate, a market rate of return, a measure of volatility (Beta) and a company specific and capital markets risk premium, as appropriate, to adjust for volatility and uncertainty in the economy and to capture specific risk related to the respective reporting units. The Company considered whether an asset sale or an equity sale would be the most likely sale structure for each reporting unit and valued each reporting unit based on the


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SLM CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2010 and for the three and nine months ended
September 30, 2010 and 2009 is unaudited)
(Dollars in thousands, except per share amounts, unless otherwise noted)
 
4.   Goodwill and Acquired Intangible Assets (Continued)
 
more likely hypothetical scenario. Resulting discount rates and growth rates used for the Lending, APG, Guarantor Servicing, and Upromise reporting units were:
 
                                 
    Third Quarter 2010   Fourth Quarter 2009
    Discount Rate   Growth Rate   Discount Rate   Growth Rate
 
Lending(1)
    13 %     0.5 %     11 %     3 %
APG(2)
    14 %     2.5 %     10 %     4 %
Guarantor Servicing(2)
    13 %     0 %     10 %     0 %
Upromise(2)
    17 %     2.5 %     15 %     4 %
 
 
(1) Assumes an equity sale; therefore, the discount rate is used to value the entire reporting unit.
 
(2) Assumes an asset sale; therefore, the discount rate is used to value the assets of the reporting unit.
 
The discount rates reflect market based estimates of capital costs and are adjusted for management’s assessment of a market participant’s view with respect to execution, concentration and other risks associated with the projected cash flows of individual reporting units. The discount rates are higher than the ones used in the 2009 annual impairment test primarily due to new information received in the third quarter of 2010 related to implied discount rates of similar transactions that priced or settled in the third quarter of 2010. In addition, the Dodd-Frank Act, which became law in the third quarter of 2010, creates uncertainty over particular parts of the business. In addition, the Upromise reporting unit had a significant reduction in future revenue expectations during the third quarter of 2010 related to contract negotiations. Management reviewed and approved the discount rates provided by the third-party appraiser including the factors incorporated to develop the discount rates for each reporting unit. For the valuation of the Lending reporting unit, which assumed an equity sale, the discount rate was applied to the reporting unit’s projected net cash flows and the residual or terminal value yielding the fair value of equity for the reporting unit. For valuations assuming an asset sale, the discount rates applicable to the individual reporting units were applied to the respective reporting units’ projected asset cash flows and residual or terminal values, as applicable, yielding the fair value of the assets for the respective reporting units. The estimated proceeds from the hypothetical asset sale were then used to payoff any liabilities of the reporting unit with the remaining cash equaling the fair value of the reporting unit’s equity.
 
The guideline company or market approach was also considered for the Company’s Lending reporting unit. The market approach generally measures the value of a reporting unit as compared to recent sales or offerings of comparable companies. The secondary market approach indicates value based on multiples calculated using the market value of minority interests in publicly traded comparable companies or guideline companies. Whether analyzing comparable transactions or the market value of minority interests in publicly traded guideline companies, consideration is given to the line of business and the operating performance of the comparable companies versus the reporting unit being tested.
 
The following table illustrates the carrying value of equity for each reporting unit and the estimated fair value determined in conjunction with Step 1 impairment testing in the third quarter of 2010.
 
                                 
    Carrying Value
  Fair Value
       
(Dollars in millions)   of Equity   of Equity   $ Difference   % Difference
 
Lending
  $ 3,530     $ 6,201     $ 2,671       76 %
APG
    641       405       (236 )     (36 )
Guarantor Servicing
    97       91       (6 )     (6 )
Upromise
    221       110       (111 )     (50 )


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SLM CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2010 and for the three and nine months ended
September 30, 2010 and 2009 is unaudited)
(Dollars in thousands, except per share amounts, unless otherwise noted)
 
4.   Goodwill and Acquired Intangible Assets (Continued)
 
The following table illustrates the book basis of equity for each reporting unit and the estimated fair value determined in conjunction with Step 1 impairment testing in the fourth quarter of 2009.
 
                                 
    Carrying Value
    Fair Value
             
(Dollars in millions)   of Equity     of Equity     $ Difference     % Difference  
 
Lending
  $ 1,474     $ 3,270     $ 1,796       122 %
APG
    1,390       1,690       300       22  
Guarantor Servicing
    142       221       79       56  
Upromise
    297       430       133       45  
 
The estimated fair value of the Company resulting from its third-quarter 2010 Step 1 impairment test was 29 percent higher than its market capitalization as of the valuation date. The Company views this as a reasonable “control premium.” Management reviewed and approved the valuation prepared by the appraisal firm for each reporting unit, including the valuation methods employed and the key assumptions used, such as the discount rates, growth rates and control premiums, as applicable, for each reporting unit. Management also performed stress tests of key assumptions using a range of discount rates and growth rates, as applicable. Based on the valuations performed in conjunction with Step 1 impairment testing and these stress tests, there was no indicated impairment for the Lending reporting unit and there was indicated impairment for the APG, Guarantor Services and Upromise reporting units in the third quarter testing.
 
Under the second step of the analysis, determining the implied fair value of goodwill requires valuation of a reporting unit’s identifiable tangible and intangible assets and liabilities in a manner similar to the allocation of purchase price in a business combination. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, goodwill is deemed impaired and is written down to the extent of the difference. As a result, the Company impaired the value of its goodwill by $402 million in its APG reporting unit, $140 million in its Upromise reporting unit and $62 million in its Guarantor Servicing reporting unit, which has been recorded as a charge in the third quarter of 2010.
 
Management acknowledges that the economic slowdown could adversely affect the operating results of the Company’s reporting units. If the forecasted performance of the Company’s reporting units is not achieved, or if the Company’s stock price declines to a depressed level resulting in deterioration in the Company’s total market capitalization, the fair value of the Lending reporting unit (which is the only reporting unit that has goodwill as of September 30, 2010) could be significantly reduced, and the Company may be required to record a charge, which could be material, for an impairment of goodwill.
 
In connection with management’s assessment of possible changes to the Company’s business, the Company is planning to redefine its operating segments and revise its reportable segments presentation in the fourth quarter of 2010, once certain decisions have been finalized with respect to how management will view the business on a going-forward basis.


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SLM CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2010 and for the three and nine months ended
September 30, 2010 and 2009 is unaudited)
(Dollars in thousands, except per share amounts, unless otherwise noted)
 
4.   Goodwill and Acquired Intangible Assets (Continued)
 
Goodwill by Reportable Segments
 
A summary of the Company’s goodwill by reportable segment is as follows:
 
                 
    September 30,
    December 31,
 
(Dollars in millions)   2010     2009  
 
Lending
  $ 387     $ 387  
APG
          402  
Other
          202  
                 
Total
  $ 387     $ 991  
                 
 
Acquired Intangible Assets
 
Acquired intangible assets include the following:
 
                                 
          As of September 30, 2010  
    Average
          Accumulated
       
    Amortization
    Cost
    Impairment and
       
(Dollars in millions)   Period     Basis(1)     Amortization(1)     Net  
 
Intangible assets subject to amortization:
                               
Customer, services and lending relationships
    13 years     $ 307     $ (232 )   $ 75  
Software and technology
    7 years       93       (90 )     3  
Non-compete agreements
            11       (11 )      
                                 
Total
            411       (333 )     78  
Intangible assets not subject to amortization:
                               
Trade names and trademarks
    Indefinite       23             23  
                                 
Total acquired intangible assets
          $ 434     $ (333 )   $ 101  
                                 
 
                                 
          As of December 31, 2009  
    Average
          Accumulated
       
    Amortization
    Cost
    Impairment and
       
(Dollars in millions)   Period     Basis(1)     Amortization(1)     Net  
 
Intangible assets subject to amortization:
                               
Customer, services, and lending relationships
    12 years     $ 332     $ (208 )   $ 124  
Software and technology
    7 years       98       (89 )     9  
Non-compete agreements
            11       (11 )      
                                 
Total
            441       (308 )     133  
Intangible assets not subject to amortization:
                               
Trade names and trademarks
    Indefinite       54             54  
                                 
Total acquired intangible assets
          $ 495     $ (308 )   $ 187  
                                 
 
 
(1) Includes impairment amounts only if portion of the acquired intangible has been deemed impaired. When an acquired intangible is considered fully impaired the cost basis and any accumulated amortization related to the asset is written off.
 
Intangible asset impairment for the Upromise reporting unit totaled $53 million for both the three and nine months ended September 30, 2010 and $0 for the three and nine months ended September 30, 2009. Intangible asset impairment for the Lending reporting unit totaled $3 million for both the three and nine


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SLM CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2010 and for the three and nine months ended
September 30, 2010 and 2009 is unaudited)
(Dollars in thousands, except per share amounts, unless otherwise noted)
 
4.   Goodwill and Acquired Intangible Assets (Continued)
 
months ended September 30, 2010 and $0 for both the three and nine months ended September 30, 2009 (see previous discussion regarding reasons for goodwill impairment testing).
 
The Company recorded amortization of acquired intangible assets from continuing operations totaling $10 million and $10 million for the three months ended September 30, 2010 and 2009, respectively and $29 million and $29 million for the nine months ended September 30, 2010 and 2009, respectively. The Company will continue to amortize its intangible assets with definite useful lives over their remaining estimated useful lives.
 
5.   Borrowings
 
The following table summarizes the Company’s borrowings as of September 30, 2010 and December 31, 2009.
 
                                                 
    September 30, 2010     December 31, 2009  
    Short
    Long
          Short
    Long
       
(Dollars in millions)   Term     Term     Total     Term     Term     Total  
 
Unsecured borrowings
  $ 3,422     $ 19,177     $ 22,599     $ 5,185     $ 22,797     $ 27,982  
Unsecured term bank deposits
    1,618       3,263       4,881       842       4,795       5,637  
FHLB-DM facility
    525             525                    
ED Participation Program facility
    20,226             20,226       9,006             9,006  
ED Conduit Program facility
    15,426             15,426       14,314             14,314  
ABCP borrowings
    1,152       4,827       5,979             8,801       8,801  
Securitizations
          120,720       120,720             89,200       89,200  
Indentured trusts
    2       1,330       1,332       64       1,533       1,597  
Other(1)
    2,745             2,745       1,472             1,472  
                                                 
Total before hedge accounting adjustments
    45,116       149,317       194,433       30,883       127,126       158,009  
Hedge accounting adjustments
    272       3,687       3,959       14       3,420       3,434  
                                                 
Total
  $ 45,388     $ 153,004     $ 198,392     $ 30,897     $ 130,546     $ 161,443  
                                                 
 
 
(1) At September 30, 2010, other primarily consists of $1.6 billion of cash collateral held related to derivative exposures that are recorded as a short-term debt obligation, as well as $1.1 billion of unsecured other bank deposits. At December 31, 2009, other primarily consisted of cash collateral held related to derivative exposures that are recorded as a short-term debt obligation.
 
Secured Borrowings
 
VIEs are required to be consolidated by their primary beneficiaries. The criteria to be considered the primary beneficiary changed on January 1, 2010 upon the adoption of topic updates to ASC 810 (see Note 1, “Significant Accounting Policies — Recently Issued Accounting Standards - Transfers of Financial Assets and the VIE Consolidation Model” for further discussion). A VIE exists when either the total equity investment at risk is not sufficient to permit the entity to finance its activities by itself, or the equity investors lack one of three characteristics associated with owning a controlling financial interest. Those characteristics are the direct or indirect ability to make decisions about an entity’s activities that have a significant impact on the success of the entity, the obligation to absorb the expected losses of an entity, and the rights to receive the expected residual returns of the entity.


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SLM CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2010 and for the three and nine months ended
September 30, 2010 and 2009 is unaudited)
(Dollars in thousands, except per share amounts, unless otherwise noted)
 
5.   Borrowings (Continued)
 
The Company currently consolidates a number of financing entities that are VIEs as a result of being the entities’ primary beneficiary. As a result, these financing VIEs are accounted for as secured borrowings. The Company is the primary beneficiary of and currently consolidates the following financing VIEs as of September 30, 2010 and December 31, 2009:
 
                                                         
    September 30, 2010  
    Debt Outstanding                          
    Short
    Long
          Carrying Amount of Assets Securing Debt Outstanding  
(Dollars in millions)   Term     Term     Total     Loans     Cash     Other Assets     Total  
 
Secured Borrowings:
                                                       
ED Participation Program facility
  $ 20,226     $     $ 20,226     $ 20,656     $ 162     $ 434     $ 21,252  
ED Conduit Program facility
    15,426             15,426       15,515       501       434       16,450  
ABCP borrowings
    1,152       4,827       5,979       6,418       94       54       6,566  
Securitizations
          120,720       120,720       124,269       4,605       3,436       132,310  
Indentured trusts
    2       1,330       1,332       1,608       160       16       1,784  
                                                         
Total before hedge accounting adjustments
    36,806       126,877       163,683       168,466       5,522       4,374       178,362  
Hedge accounting adjustments
          1,597       1,597                          
                                                         
Total
  $ 36,806     $ 128,474     $ 165,280     $ 168,466     $ 5,522     $ 4,374     $ 178,362  
                                                         
 
                                                         
    December 31, 2009  
    Debt Outstanding                          
    Short
    Long
          Carrying Amount of Assets Securing Debt Outstanding  
(Dollars in millions)   Term     Term     Total     Loans     Cash     Other Assets     Total  
 
Secured Borrowings:
                                                       
ED Participation Program facility
  $ 9,006     $     $ 9,006     $ 9,397     $ 115     $ 61     $ 9,573  
ED Conduit Program facility
    14,314             14,314       14,594       478       372       15,444  
ABCP borrowings
          8,801       8,801       9,929       204       100       10,233  
Securitizations
          89,200       89,200       93,021       3,627       3,083       99,731  
Indentured trusts
    64       1,533       1,597       1,898       172       24       2,094  
                                                         
Total before hedge accounting adjustments
    23,384       99,534       122,918       128,839       4,596       3,640       137,075  
Hedge accounting adjustments
          1,479       1,479                          
                                                         
Total
  $ 23,384     $ 101,013     $ 124,397     $ 128,839     $ 4,596     $ 3,640     $ 137,075  
                                                         
 
The Department of Education (“ED”) Funding Programs
 
In August 2008, ED implemented the Purchase Program and the Participation Program pursuant to The Ensuring Continued Access to Student Loans Act of 2008 (“ECASLA”). Under the Purchase Program, ED


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SLM CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2010 and for the three and nine months ended
September 30, 2010 and 2009 is unaudited)
(Dollars in thousands, except per share amounts, unless otherwise noted)
 
5.   Borrowings (Continued)
 
purchases eligible FFELP loans at a price equal to the sum of (i) par value, (ii) accrued interest, (iii) the one-percent origination fee paid to ED, and (iv) a fixed amount of $75 per loan. Under the Participation Program, ED provides short-term liquidity to FFELP lenders by purchasing participation interests in pools of FFELP loans. FFELP lenders are charged a rate equal to the preceding quarter commercial paper rate plus 0.50 percent on the principal amount of participation interests outstanding. Loans eligible for the Participation or Purchase Programs are limited to FFELP Stafford or PLUS Loans, first disbursed on or after May 1, 2008 but no later than July 1, 2010, with no ongoing borrower benefits other than permitted rate reductions of 0.25 percent for automatic payment processing. In October 2010, the Company sold $20.4 billion of loans to ED and paid off $20.3 billion of advances outstanding under the Participation Program which concludes participation in the program.
 
Also pursuant to ECASLA, on January 15, 2009, ED published summary terms under which it will purchase eligible FFELP Stafford and PLUS Loans from a conduit vehicle established to provide funding for eligible student lenders (the “ED Conduit Program”). Loans eligible for the ED Conduit Program must be first disbursed on or after October 1, 2003, but not later than July 1, 2009, and fully disbursed before September 30, 2009, and meet certain other requirements, including those relating to borrower benefits. The ED Conduit Program was launched on May 11, 2009 and accepted eligible loans through July 1, 2010. The ED Conduit Program expires on January 19, 2014. Funding for the ED Conduit Program is provided by the capital markets at a cost based on market rates, with the Company being advanced 97 percent of the student loan face amount. If the conduit does not have sufficient funds to make the required payments on the notes issued by the conduit, then the notes will be repaid with funds from the Federal Financing Bank (“FFB”). The FFB will hold the notes for a short period of time and, if at the end of that time, the notes still cannot be paid off, the underlying FFELP loans that serve as collateral to the ED Conduit will be sold to ED through a put agreement at a price of 97 percent of the face amount of the loans. As of September 30, 2010, approximately $15.2 billion face amount of the Company’s Stafford and PLUS Loans were funded through the ED Conduit Program. For the third quarter of 2010, the average interest rate paid on this facility was approximately 0.77 percent.
 
Asset-Backed Financing Facilities
 
During the first quarter of 2008, the Company entered into three new asset-backed commercial paper financing facilities (the “2008 Asset-Backed Financing Facilities”) to fund FFELP and Private Education Loans. In 2009, the FFELP facilities were subsequently amended and reduced and the Private Education facility was retired.
 
On January 15, 2010, the Company terminated the 2008 Asset-Backed Financing Facilities for FFELP and entered into new multi-year ABCP facilities (the “2010 Facility”) which will continue to provide funding for the Company’s federally guaranteed student loans. The 2010 Facility provides for maximum funding of $10 billion for the first year, $5 billion for the second year and $2 billion for the third year. Upfront fees related to the 2010 Facility were approximately $4 million. The underlying cost of borrowing under the 2010 Facility for the first year is expected to be commercial paper issuance cost plus 0.50 percent, excluding up-front commitment and unused fees.
 
Borrowings under the 2010 Facility are non-recourse to the Company. The maximum amount the Company may borrow under the 2010 Facility is limited based on certain factors, including market conditions and the fair value of student loans in the facility. In addition to the funding limits described above, funding under the 2010 Facility is subject to usual and customary conditions. The 2010 Facility is subject to termination under certain circumstances, including the Company’s failure to comply with the principal financial covenants in its unsecured revolving credit facility. Increases in the borrowing rate of up to LIBOR


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SLM CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2010 and for the three and nine months ended
September 30, 2010 and 2009 is unaudited)
(Dollars in thousands, except per share amounts, unless otherwise noted)
 
5.   Borrowings (Continued)
 
plus 4.50 percent could occur if certain asset coverage ratio thresholds are not met. Failure to pay off the 2010 Facility on the maturity date or to reduce amounts outstanding below the annual maximum step downs will result in a 90-day extension of the 2010 Facility with the interest rate increasing from LIBOR plus 2.00 percent to LIBOR plus 3.00 percent over that period. If, at the end of the 90-day extension, these required paydown amounts have not been made, the collateral can be foreclosed upon. As of September 30, 2010, there was approximately $6.0 billion outstanding in this facility. The book basis of the assets securing this facility at September 30, 2010 was $6.6 billion.
 
Securitizations
 
On February 6, 2009, the Federal Reserve Bank of New York published proposed terms for a program designed to facilitate renewed issuance of consumer and small business ABS at lower interest rate spreads. The Term Asset-Backed Securities Loan Facility (“TALF”) was initiated on March 17, 2009 and provided investors who purchase eligible ABS with funding of up to five years. Eligible ABS include ‘‘AAA’’ rated student loan ABS backed by FFELP and Private Education Loans first disbursed since May 1, 2007. For student loan collateral, TALF expired on March 31, 2010.
 
In 2009, the Company completed four FFELP long-term ABS transactions totaling $5.9 billion. The FFELP transactions were composed primarily of FFELP Consolidation Loans which were not eligible for the ED Conduit Program or TALF.
 
During 2009, the Company completed $7.5 billion of Private Education Loan term ABS transactions, all of which were private placement transactions. On January 6, 2009, the Company closed a $1.5 billion 12.5 year ABS based facility (“Total Return Swap Facility”). This facility is used to provide up to $1.5 billion term financing for Private Education Asset-Backed Securities. The fully utilized cost of financing obtained under this facility is expected to be LIBOR plus 5.75 percent. In connection with this facility, the Company completed one Private Education Loan term ABS transaction totaling $1.5 billion in the first quarter of 2009. The net funding received under the ABS based facility for this issuance was $1.1 billion. The remaining $6.0 billion of Private Education Loan term ABS transactions were TALF-eligible.
 
On March 3, 2010, the Company priced a $1.6 billion Private Education Loan term ABS transaction which was TALF-eligible. The notes settled on March 11, 2010 and the issuance included one $149 million tranche bearing a coupon of Prime minus 0.05 percent and a second $1.401 billion tranche bearing a coupon of 1-month LIBOR plus 3.25 percent.
 
On April 12, 2010, the Company priced a $1.2 billion FFELP long-term ABS transaction. The transaction settled on April 15, 2010 and includes $1.2 billion A Notes bearing a coupon of 1-month LIBOR plus 0.40 percent and $37 million B Notes bearing a coupon of 1-month LIBOR plus 0.90 percent. The B Notes were purchased by the Company in their entirety on the settlement date. This transaction was composed primarily of FFELP Stafford and PLUS loans.
 
On July 22, 2010, the Company redeemed its $1.5 billion SLM Private Education Loan Trust 2009-A ABS issue and closed new offerings of its $869 million SLM 2010-B and $1.7 billion SLM 2010-C Private Education Loan Trust ABS issues. Approximately $875 million of the 2010-B and 2010-C bonds were issued at a weighted average coupon of 1-month LIBOR plus 2.23 percent; the remaining $1.7 billion of bonds were financed under the Company’s Total Return Swap Facility. These concurrent transactions raised approximately $1.0 billion of net additional cash for the Company.


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SLM CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2010 and for the three and nine months ended
September 30, 2010 and 2009 is unaudited)
(Dollars in thousands, except per share amounts, unless otherwise noted)
 
5.   Borrowings (Continued)
 
On August 18, 2010, the Company priced a $760 million FFELP ABS transaction. The transaction settled on August 26, 2010 and includes $738 million A Notes bearing a coupon of 1-month LIBOR plus 0.50 percent and $22 million B Notes bearing a coupon of 1-month LIBOR plus 0.90 percent. The B Notes were purchased by the Company in their entirety on the settlement date. This transaction was composed primarily of FFELP Stafford and PLUS loans.
 
The Company has $5.3 billion face amount of Private Education Loan securitization bonds outstanding at September 30, 2010, where the Company has the ability to call the bonds at a discount to par between 2011 and 2014. The Company has concluded that it is probable it will call these bonds at the call date at the respective discount. Probability is based on the Company’s assessment of whether these bonds can be refinanced at the call date at or lower than a breakeven cost of funds based on the call discount. As a result, the Company is accreting this call discount as a reduction to interest expense through the call date. If it becomes less than probable that the Company will call these bonds at a future date, it will result in the Company reversing this prior accretion as a cumulative catch-up adjustment. The Company has accreted approximately $140 million, cumulatively, and $27 million in the third quarter of 2010 as a reduction of interest expense.
 
Auction Rate Securities
 
At September 30, 2010, the Company had $3.3 billion of taxable and $1.0 billion of tax-exempt auction rate securities outstanding in securitizations and indentured trusts, respectively. Since February 2008, problems in the auction rate securities market as a whole led to failures of the auctions pursuant to which certain of the Company’s auction rate securities’ interest rates are set. As a result, $3.4 billion of the Company’s auction rate securities as of September 30, 2010 bore interest at the maximum rate allowable under their terms. The maximum allowable interest rate on the Company’s taxable auction rate securities is generally LIBOR plus 1.50 percent. The maximum allowable interest rate on many of the Company’s tax-exempt auction rate securities is a formula driven rate, which produced various maximum rates up to 0.81 percent during the third quarter of 2010. As of September 30, 2010, $0.9 billion of auction rate securities with shorter weighted average terms to maturity have had successful auctions, resulting in an average rate of 1.67 percent.
 
Indentured Trusts
 
The Company has secured assets and outstanding bonds in indentured trusts resulting from the acquisition of various student loan providers in prior periods. The indentures were created and bonds issued to finance the acquisition of student loans guaranteed under the Higher Education Act. The bonds are limited obligations of the Company and are secured by and payable from payments associated with the underlying secured loans.
 
Federal Home Loan Bank of Des Moines (“FHLB-DM”)
 
On January 15, 2010, HICA Education Loan Corporation (“HICA”), a subsidiary of the Company, entered into a lending agreement with the FHLB-DM. Under the agreement, the FHLB-DM will provide advances backed by Federal Housing Finance Agency approved collateral which includes federally-guaranteed student loans (but does not include Private Education Loans). The initial borrowing of $25 million at a rate of 0.23 percent under this facility occurred on January 15, 2010 and matured on January 22, 2010. The amount, price and tenor of future advances will vary and will be determined at the time of each borrowing. The maximum amount that can be borrowed, as of September 30, 2010, subject to available collateral, is


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SLM CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2010 and for the three and nine months ended
September 30, 2010 and 2009 is unaudited)
(Dollars in thousands, except per share amounts, unless otherwise noted)
 
5.   Borrowings (Continued)
 
approximately $10 billion. As of September 30, 2010, borrowing under the facility totaled $525 million. The Company has provided a guarantee to the FHLB-DM for the performance and payment of HICA’s obligations.
 
Other Funding Sources
 
Sallie Mae Bank
 
During the fourth quarter of 2008, Sallie Mae Bank, the Company’s Utah industrial bank subsidiary, began expanding its deposit base to fund new Private Education Loan originations. Sallie Mae Bank raises deposits through intermediaries in the retail brokered Certificate of Deposit (“CD”) market and through retail deposit channels. As of September 30, 2010, bank deposits totaled $6.0 billion of which $4.9 billion were brokered term deposits, $0.8 billion were retail deposits and $0.3 billion were other deposits. In addition, the bank has deposits from affiliates totaling $0.5 billion that eliminate in the Company’s consolidated balance sheet. Cash and liquid investments totaled $2.7 billion as of September 30, 2010.
 
Under Sallie Mae Bank’s 2010 business plan submitted to its regulators, Sallie Mae Bank is permitted to declare and pay a dividend to its parent, SLM Corporation. The dividend must be permitted by Utah law and the Bank must be in compliance with its capital standards at the time of payment and be projected to maintain sufficient capital over a period of time. On October 28, 2010, Sallie Mae Bank paid a cash dividend of $400 million to the Company.
 
In addition to its deposit base, Sallie Mae Bank has borrowing capacity with the Federal Reserve Bank (“FRB”) through a collateralized lending facility. Borrowing capacity is limited by the availability of acceptable collateral. As of September 30, 2010, borrowing capacity was approximately $0.6 billion and there were no outstanding borrowings.
 
Unsecured Revolving Credit Facility
 
As of September 30, 2010, the Company had $1.6 billion in an unsecured revolving credit facility which provides liquidity support for general corporate purposes. This facility matures in October 2011. On May 5, 2010, the $1.9 billion revolving credit facility maturing in October 2010 was terminated.
 
The principal financial covenants in the unsecured revolving credit facility require the Company to maintain consolidated tangible net worth of at least $1.38 billion at all times. Consolidated tangible net worth as calculated for purposes of this covenant was $3.3 billion as of September 30, 2010. The covenants also require the Company to meet either a minimum interest coverage ratio or a minimum net adjusted revenue test based on the four preceding quarters’ adjusted “Core Earnings” financial performance. The Company was compliant with both of the minimum interest coverage ratio and the minimum net adjusted revenue tests as of the quarter ended September 30, 2010. In the past, the Company has not relied upon its unsecured revolving credit facilities as a primary source of liquidity. Although the Company has never borrowed under these facilities, the revolving credit facility maturing October 2011 remains available to be drawn upon for general corporate purposes.
 
6.   Student Loan Securitization
 
The Company securitizes its FFELP Stafford loans, FFELP Consolidation Loans and Private Education Loan assets. Prior to the adoption of topic updates to the FASB’s ASC 810 on January 1, 2010, for transactions qualifying as sales, the Company retained a Residual Interest and servicing rights (as the Company retained the servicing responsibilities), all of which were referred to as the Company’s Retained Interest in off-balance sheet securitized loans. The Residual Interest is the right to receive cash flows from the


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SLM CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2010 and for the three and nine months ended
September 30, 2010 and 2009 is unaudited)
(Dollars in thousands, except per share amounts, unless otherwise noted)
 
6.   Student Loan Securitization (Continued)
 
student loans and reserve accounts in excess of the amounts needed to pay servicing, derivative costs (if any), other fees, and the principal and interest on the bonds backed by the student loans. As a result of adopting the topic updates to ASC 810, the Company removed the $1.8 billion of Residual Interests (associated with its previously off-balance sheet securitization trusts as of December 31, 2009) from the consolidated balance sheet (see Note 1, “Significant Accounting Policies — Recently Issued Accounting Standards - Transfers of Financial Assets and the VIE Consolidation Model” for further details). While this accounting has changed, the Company’s economic interest in these assets remains unchanged.
 
Securitization Activity
 
The following table summarizes the Company’s securitization activity for the three and nine months ended September 30, 2010 and 2009. The securitizations in the periods presented below were accounted for as financings under ASC 860.
 
                                                                 
    Three Months Ended September 30,     Nine Months Ended September 30,  
    2010     2009     2010     2009  
          Loan
          Loan
          Loan
          Loan
 
    No. of
    Amount
    No. of
    Amount
    No. of
    Amount
    No. of
    Amount
 
(Dollars in millions)   Transactions     Securitized     Transactions     Securitized     Transactions     Securitized     Transactions     Securitized  
 
Securitizations:
                                                               
FFELP Stafford/PLUS Loans
    1     $ 754           $       2     $ 1,965           $  
FFELP Consolidation Loans
                                        2       4,524  
Private Education Loans
    2       4,257       2       3,766       3       6,186       4       10,184  
                                                                 
Total securitizations
    3     $ 5,011       2     $ 3,766       5     $ 8,151       6     $ 14,708  
                                                                 
 
The following table summarizes cash flows received from or paid to the previously off-balance sheet securitization trusts during the three and nine months ended September 30, 2009.
 
                 
    Three Months
  Nine Months
    Ended
  Ended
(Dollars in millions)   September 30, 2009   September 30, 2009
 
Net proceeds from new securitizations completed during the period
  $     $  
Cash distributions from trusts related to Residual Interests
    100       368  
Servicing fees received(1)
    55       171  
Purchases of previously transferred financial assets for representation and warranty violations
    (1 )     (6 )
Reimbursements of borrower benefits
    (9 )     (26 )
Purchases of delinquent Private Education Loans from securitization trusts using delinquent loan call option
           
Purchases of loans using clean-up call option
           
 
 
(1) The Company receives annual servicing fees of 90 basis points, 50 basis points and 70 basis points of the outstanding securitized loan balance related to its FFELP Stafford, FFELP Consolidation Loan and Private Education Loan securitizations, respectively.


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SLM CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2010 and for the three and nine months ended
September 30, 2010 and 2009 is unaudited)
(Dollars in thousands, except per share amounts, unless otherwise noted)
 
6.   Student Loan Securitization (Continued)
 
 
Retained Interest in Securitized Receivables
 
The following tables summarize the fair value of the Company’s Residual Interests, included in the Company’s Retained Interest (and the assumptions used to value such Residual Interests), along with the underlying off-balance sheet student loans that relate to those securitizations in transactions that were treated as sales as of December 31, 2009. As noted previously, the Residual Interest was removed from the balance sheet on January 1, 2010.
 
                                 
    As of December 31, 2009
    FFELP
  Consolidation
  Private
   
    Stafford and
  Loan
  Education
   
(Dollars in millions)   PLUS   Trusts(1)   Loan Trusts   Total
 
Fair value of Residual Interests
  $ 243     $ 791     $ 794     $ 1,828  
Underlying securitized loan balance
    5,377       14,369       12,986       32,732  
Weighted average life
    3.3 yrs.       9.0 yrs.       6.3 yrs.          
Prepayment speed (annual rate)(2):
                               
Interim status
    0 %     N/A       0 %        
Repayment status
    0-14 %     2-4 %     2-15 %        
Life of loan — repayment status
    9 %     3 %     6 %        
Expected remaining credit losses (% of outstanding student loan principal)(3)(4)
    .10 %     .25 %     5.31 %        
Residual cash flows discount rate
    10.6 %     12.3 %     27.5 %        
 
 
(1) Includes $569 million related to the fair value of the Embedded Floor Income as of December 31, 2009.
 
(2) The Company uses Constant Prepayment Rate (“CPR”) curves for Residual Interest valuations that are based on seasoning (the number of months since entering repayment). Under this methodology, a different CPR is applied to each year of a loan’s seasoning. Repayment status CPR used is based on the number of months since first entering repayment (seasoning). Life of loan CPR is related to repayment status only and does not include the impact of the loan while in interim status. The CPR assumption used for all periods includes the impact of projected defaults.
 
(3) Remaining expected credit losses as of the respective balance sheet date.
 
(4) For Private Education Loan trusts, estimated defaults from settlement to maturity are 12.2 percent at December 31, 2009. These estimated defaults do not include recoveries related to defaults but do include prior purchases of loans at par by the Company when loans reached 180 days delinquent (prior to default) under a contingent call option. Although these loan purchases do not result in a realized loss to the trust, the Company has included them here. Not including these purchases in the disclosure would result in estimated defaults of 9.3 percent at December 31, 2009.
 
The Company recorded net unrealized mark-to-market gains/(losses) in “securitization servicing and Residual Interest revenue (loss)” of $13 million and $(338) million for the three and nine months ended September 30, 2009.
 
The $13 million unrealized mark-to-market gain in the third quarter of 2009 was primarily a result of decreases in the discount rates used to value the Residual Interests, increases in the fair value of the Embedded Fixed Rate Floor Income component of the Residual Interest and reductions in the life of loan CPR which were partially offset by higher than modeled defaults on Private Education Loans.
 
The $338 million mark-to-market loss for the nine months ended September 30, 2009 was primarily due to:
 
  •  Higher than modeled Private Education Loan defaults resulted in a $262 million unrealized mark-to-market loss.


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SLM CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2010 and for the three and nine months ended
September 30, 2010 and 2009 is unaudited)
(Dollars in thousands, except per share amounts, unless otherwise noted)
 
6.   Student Loan Securitization (Continued)
 
 
  •  Life of loan default rate assumptions for Private Education Loans were increased as a result of the continued weakening of the U.S. economy. This resulted in a $49 million unrealized mark-to-market loss.
 
  •  The discount rate risk premium assumption related to the Private Education Loan Residual Interests was increased by 500 basis points to take into account the level of cash flow uncertainty and lack of liquidity that existed with the Residual Interests as of September 30, 2009. This resulted in a $126 million unrealized mark-to-market loss.
 
  •  Decreases in life of loan CPR speeds used to value the Residual Interests resulted in a $62 million mark-to-market gain.
 
The table below shows the Company’s off-balance sheet Private Education Loan delinquencies as of September 30, 2009.
 
                 
    Off-Balance Sheet
 
    Private Education
 
    Loan Delinquencies  
    September 30, 2009  
(Dollars in millions)   Balance     %  
 
Loans in-school/grace/deferment(1)
  $ 3,148          
Loans in forbearance(2)
    474          
Loans in repayment and percentage of each status:
               
Loans current
    8,516       90.0 %
Loans delinquent 31-60 days(3)
    312       3.3  
Loans delinquent 61-90 days(3)
    161       1.7  
Loans delinquent greater than 90 days(3)
    469       5.0  
                 
Total off-balance sheet Private Education Loans in repayment
    9,458       100.0 %
                 
Total off-balance sheet Private Education Loans, gross
  $ 13,080          
                 
 
 
(1) Loans for borrowers who may be attending school or engaging in other permitted educational activities and are not yet required to make payments on their loans, e.g., residency periods for medical students or a grace period for bar exam preparation.
 
(2) Loans for borrowers who have requested extension of grace period generally during employment transition or who have temporarily ceased making full payments due to hardships or other factors, consistent with established loan program servicing policies and procedures.
 
(3) The period of delinquency is based on the number of days scheduled payments are contractually past due.


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SLM CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2010 and for the three and nine months ended
September 30, 2010 and 2009 is unaudited)
(Dollars in thousands, except per share amounts, unless otherwise noted)
 
6.   Student Loan Securitization (Continued)
 
 
The following table summarizes charge-off activity for Private Education Loans in the off-balance sheet trusts for the three and nine months ended September 30, 2009.
 
                 
    Three Months
  Nine Months
    Ended
  Ended
(Dollars in millions)   September 30, 2009   September 30, 2009
 
Charge-offs
  $ 150     $ 329  
Charge-offs as a percentage of average loans in repayment (annualized)
    6.2 %     4.6 %
Charge-offs as a percentage of average loans in repayment and forbearance (annualized)
    5.9 %     4.3 %
Ending off-balance sheet total Private Education Loans(1)
  $ 13,280     $ 13,280  
Average off-balance sheet Private Education Loans in repayment
  $ 9,585     $ 9,543  
Ending off-balance sheet Private Education Loans in repayment
  $ 9,458     $ 9,458  
 
 
(1) Ending total loans represents gross Private Education Loans, plus the receivable for partially charged-off loans (see Note 2, “Allowance for Loan Losses”).
 
7.   Derivative Financial Instruments
 
Derivative instruments are used as part of the Company’s interest rate and foreign currency risk management strategy and include interest rate swaps, basis swaps, cross-currency interest rate swaps, interest rate futures contracts, and interest rate floor and cap contracts with indices that relate to the pricing of specific balance sheet assets and liabilities. (For a full discussion of the Company’s risk management strategy and use of derivatives, please see the Company’s 2009 Form 10-K, Note 9, “Derivative Financial Instruments,” to the consolidated financial statements.) The accounting for the Company’s derivatives requires that every derivative instrument, including certain derivative instruments embedded in other contracts, be recorded in the balance sheet as either an asset or liability measured at its fair value. The Company’s derivative instruments are classified and accounted for by the Company as fair value hedges, cash flow hedges or trading activities.
 
Fair Value Hedges
 
Fair value hedges are generally used by the Company to hedge the exposure to changes in fair value of a recognized fixed rate asset or liability. The Company enters into interest rate swaps to convert fixed rate assets into variable rate assets and fixed rate debt into variable rate debt. The Company also enters into cross-currency interest rate swaps to convert foreign currency denominated fixed and floating debt to U.S. dollar denominated variable debt. Changes in value for both the hedge and the hedged item are recorded to earnings. These amounts offset each other with the net amount representing the ineffectiveness of the relationship.
 
Cash Flow Hedges
 
Cash flow hedges are used by the Company to hedge the exposure to variability in cash flows for a forecasted debt issuance and for exposure to variability in cash flows of floating rate debt. This strategy is used primarily to minimize the exposure to volatility from future changes in interest rates. Gains and losses on the effective portion of a qualifying hedge are accumulated in other comprehensive income and ineffectiveness is recorded immediately to earnings.


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SLM CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2010 and for the three and nine months ended
September 30, 2010 and 2009 is unaudited)
(Dollars in thousands, except per share amounts, unless otherwise noted)
 
7.   Derivative Financial Instruments (Continued)
 
Trading Activities
 
When instruments do not qualify as hedges, they are accounted for as trading where all changes in fair value of the derivatives are recorded through earnings. In general, derivative instruments included in trading activities include Floor Income Contracts, basis swaps and various other derivatives that do not qualify for hedge accounting.
 
Summary of Derivative Financial Statement Impact
 
The following tables summarize the fair values and notional amounts of all derivative instruments at September 30, 2010 and December 31, 2009, and their impact on other comprehensive income and earnings for the three and nine months ended September 30, 2010 and 2009.
 
Impact of Derivatives on Consolidated Balance Sheet
 
                                                                     
        Cash Flow     Fair Value     Trading     Total  
    Hedged Risk
  Sept. 30,
    Dec. 31,
    Sept. 30,
    Dec. 31,
    Sept. 30,
    Dec. 31,
    Sept. 30,
    Dec. 31,
 
(Dollars in millions)   Exposure   2010     2009     2010     2009     2010     2009     2010     2009  
 
Fair Values(1)
                                                                   
Derivative Assets
                                                                   
Interest rate swaps
  Interest rate   $     $     $ 1,447     $ 684     $ 208     $ 133     $ 1,655     $ 817  
Cross currency interest rate swaps
  Foreign currency
and interest rate
                2,594       2,932       94       44       2,688       2,976  
Other(2)
  Interest rate                             32             32        
                                                                     
Total derivative assets(3)
                    4,041       3,616       334       177       4,375       3,793  
Derivative Liabilities
                                                                   
Interest rate swaps
  Interest rate     (92 )     (78 )           (6 )     (282 )     (639 )     (374 )     (723 )
Floor Income Contracts
  Interest rate                             (1,578 )     (1,234 )     (1,578 )     (1,234 )
Cross currency interest rate swaps
  Foreign currency
and interest rate
                (207 )     (192 )     (1 )     (1 )     (208 )     (193 )
Other(2)
  Interest rate                             (1 )     (20 )     (1 )     (20 )
                                                                     
Total derivative liabilities(3)
        (92 )     (78 )     (207 )     (198 )     (1,862 )     (1,894 )     (2,161 )     (2,170 )
                                                                     
Net total derivatives
      $ (92 )   $ (78 )   $ 3,834     $ 3,418     $ (1,528 )   $ (1,717 )   $ 2,214     $ 1,623  
                                                                     
 
 
(1) Fair values reported are exclusive of collateral held and pledged and accrued interest. Assets and liabilities are presented without consideration of master netting agreements. Derivatives are carried on the balance sheet based on net position by counterparty under master netting agreements, and classified in other assets or other liabilities depending on whether in a net positive or negative position.
 
(2) “Other” includes the fair value of Euro-dollar futures contracts, the embedded derivatives in asset-backed financings, and derivatives related to the Company’s Total Return Swap Facility. The embedded derivatives are required to be accounted for as derivatives.
 
(3) The following table reconciles gross positions without the impact of master netting agreements to the balance sheet classification:
 
                                 
    Other Assets     Other Liabilities  
    September 30,
    December 31,
    September 30,
    December 31,
 
    2010     2009     2010     2009  
 
Gross position
  $ 4,375     $ 3,793     $ (2,161 )   $ (2,170 )
Impact of master netting agreements
    (1,084 )     (1,009 )     1,084       1,009  
                                 
Derivative values with impact of master netting agreements (as carried on balance sheet)
    3,291       2,784       (1,077 )     (1,161 )
Cash collateral (held) pledged
    (1,666 )     (1,268 )     850       636  
                                 
Net position
  $ 1,625     $ 1,516     $ (227 )   $ (525 )
                                 
 


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Table of Contents

SLM CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Information at September 30, 2010 and for the three and nine months ended
September 30, 2010 and 2009 is unaudited)
(Dollars in thousands, except per share amounts, unless otherwise noted)
 
7.   Derivative Financial Instruments (Continued)
 
                                                                 
    Cash Flow     Fair Value     Trading     Total  
    Sept. 30,
    Dec. 31,
    Sept. 30,
    Dec. 31,
    Sept. 30,
    Dec. 31,
    Sept. 30,
    Dec. 31,
 
(Dollars in billions)   2010     2009     2010     2009     2010     2009     2010     2009  
 
Notional Values
                                                               
Interest rate swaps
  $ 1.7     $ 1.7     $ 13.5     $ 12.4     $ 128.6     $ 148.2     $ 143.8     $ 162.3  
Floor Income Contracts