10-Q 1 d539937d10q.htm FORM 10-Q Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 10-Q

 

 

(Mark One)

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2013

or

 

¨ 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.)

300 Continental Drive, Newark, Delaware   19713
(Address of principal executive offices)   (Zip Code)

(302) 283-8000

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

 

 

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   x     No   ¨

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   x      Accelerated filer   ¨
Non-accelerated filer   ¨   (Do not check if a smaller reporting company)    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  x    No  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

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 June 30, 2013

Common Stock, $0.20 par value    436,188,852 shares

 

 

 


Table of Contents

SLM CORPORATION

Table of Contents

 

Part I. Financial Information

  

Item 1.

  

Financial Statements

     2   

Item 2.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     41   

Item 3.

  

Quantitative and Qualitative Disclosures about Market Risk

     87   

Item 4.

  

Controls and Procedures

     92   

PART II. Other Information

  

Item 1.

  

Legal Proceedings

     93   

Item 1A.

  

Risk Factors

     93   

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

     94   

Item 3.

  

Defaults Upon Senior Securities

     95   

Item 4.

  

Mine Safety Disclosures

     95   

Item 5.

  

Other Information

     95   

Item 6.

  

Exhibits

     95   

 

1


Table of Contents

PART I. FINANCIAL INFORMATION

 

Item  1. Financial Statements

SLM CORPORATION

CONSOLIDATED BALANCE SHEETS

(In millions, except share and per share amounts)

(Unaudited)

 

                             
     June 30,
2013
    December 31,
2012
 

Assets

    

FFELP Loans (net of allowance for losses of $133 and $159, respectively)

   $ 108,491      $ 125,612   

Private Education Loans (net of allowance for losses of $2,149 and $2,171 respectively)

     37,116        36,934   

Investments

    

Available-for-sale

     72        72   

Other

     866        1,010   
  

 

 

   

 

 

 

Total investments

     938        1,082   

Cash and cash equivalents

     3,327        3,900   

Restricted cash and investments

     4,109        5,011   

Goodwill and acquired intangible assets, net

     440        448   

Other assets

     7,047        8,273   
  

 

 

   

 

 

 

Total assets

   $ 161,468      $ 181,260   
  

 

 

   

 

 

 

Liabilities

    

Short-term borrowings

   $ 16,558      $ 19,856   

Long-term borrowings

     135,879        152,401   

Other liabilities

     3,597        3,937   
  

 

 

   

 

 

 

Total liabilities

     156,034        176,194   
  

 

 

   

 

 

 

Commitments and contingencies

    

Equity

    

Preferred stock, par value $0.20 per share, 20 million shares authorized

    

Series A: 3.3 million and 3.3 million shares issued, respectively, at stated value of $50 per share

     165        165   

Series B: 4 million and 4 million shares issued, respectively, at stated value of $100 per share

     400        400   

Common stock, par value $0.20 per share, 1.125 billion shares authorized: 544 million and 536 million shares issued, respectively

     109        107   

Additional paid-in capital

     4,355        4,237   

Accumulated other comprehensive income (loss) (net of tax (expense) benefit of $(5) and $3, respectively)

     9        (6

Retained earnings

     2,195        1,451   
  

 

 

   

 

 

 

Total SLM Corporation stockholders’ equity before treasury stock

     7,233        6,354   

Less: Common stock held in treasury at cost: 108 million and 83 million shares, respectively

     (1,804     (1,294
  

 

 

   

 

 

 

Total SLM Corporation stockholders’ equity

     5,429        5,060   

Noncontrolling interest

     5        6   
  

 

 

   

 

 

 

Total equity

     5,434        5,066   
  

 

 

   

 

 

 

Total liabilities and equity

   $ 161,468      $ 181,260   
  

 

 

   

 

 

 

Supplemental information — assets and liabilities of consolidated variable interest entities:

 

                             
     June 30,
2013
     December 31,
2012
 

FFELP Loans

   $ 103,662       $ 121,059   

Private Education Loans

     26,084         26,072   

Restricted cash and investments

     3,698         4,826   

Other assets

     1,841         2,312   

Short-term borrowings

     6,524         9,551   

Long-term borrowings

     116,504         131,518   
  

 

 

    

 

 

 

Net assets of consolidated variable interest entities

   $ 12,257       $ 13,200   
  

 

 

    

 

 

 

See accompanying notes to consolidated financial statements.

 

2


Table of Contents

SLM CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(In millions, except per share amounts)

(Unaudited)

 

     Three Months Ended
June  30,
    Six Months Ended
June  30,
 
       2013         2012         2013         2012    

Interest income:

        

FFELP Loans

   $ 703      $ 777      $ 1,439      $ 1,619   

Private Education Loans

     627        616        1,249        1,241   

Other loans

     3        4        6        9   

Cash and investments

     4        6        8        8   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest income

     1,337        1,403        2,702        2,877   

Total interest expense

     553        656        1,123        1,322   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income

     784        747        1,579        1,555   

Less: provisions for loan losses

     201        243        442        496   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income after provisions for loan losses

     583        504        1,137        1,059   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other income (loss):

        

Gains on sales of loans and investments

     251               307          

Gains (losses) on derivative and hedging activities, net

     18        6        (13     (366

Servicing revenue

     89        88        178        178   

Contingency revenue

     109        87        208        176   

Gains on debt repurchases

     19        20        42        58   

Other

     24        (2     58        38   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other income

     510        199        780        84   
  

 

 

   

 

 

   

 

 

   

 

 

 

Expenses:

        

Salaries and benefits

     134        117        265        242   

Other operating expenses

     124        114        243        240   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     258        231        508        482   

Goodwill and acquired intangible asset impairment and amortization expense

     4        5        7        9   

Restructuring and other reorganization expenses

     24        3        35        7   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     286        239        550        498   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations, before income tax expense

     807        464        1,367        645   

Income tax expense

     300        169        512        237   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income from continuing operations

     507        295        855        408   

Income (loss) from discontinued operations, net of tax expense (benefit)

     35        (4     33        (6
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     542        291        888        402   

Less: net loss attributable to noncontrolling interest

     (1     (1     (1     (1
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to SLM Corporation

     543        292        889        403   

Preferred stock dividends

     5        5        10        10   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to SLM Corporation common stock

   $ 538      $ 287      $ 879      $ 393   
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic earnings (loss) per common share attributable to SLM Corporation:

        

Continuing operations

   $ 1.14      $ .60      $ 1.90      $ .81   

Discontinued operations

     .08        (.01     .07        (.01
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 1.22      $ .59      $ 1.97      $ .80   
  

 

 

   

 

 

   

 

 

   

 

 

 

Average common shares outstanding

     440        482        445        493   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted earnings (loss) per common share attributable to SLM Corporation:

        

Continuing operations

   $ 1.12      $ .60      $ 1.87      $ .80   

Discontinued operations

     .08        (.01     .07        (.01
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 1.20      $ .59      $ 1.94      $ .79   
  

 

 

   

 

 

   

 

 

   

 

 

 

Average common and common equivalent shares outstanding

     448        488        453        499   
  

 

 

   

 

 

   

 

 

   

 

 

 

Dividends per common share attributable to SLM Corporation

   $ .15      $ .125      $ .30      $ .25   
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

3


Table of Contents

SLM CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(Unaudited)

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2013     2012     2013     2012  

Net income

   $ 542      $ 291      $ 888      $ 402   

Other comprehensive income (loss):

        

Unrealized gains (losses) on derivatives:

        

Unrealized hedging gains (losses) on derivatives

     22        (10     23        (11

Reclassification adjustments for derivative losses included in net income (interest expense)

     2        8        5        17   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total unrealized gains (losses) on derivatives

     24        (2     28        6   

Unrealized losses on investments

     (3           (4      

Income tax (expense) benefit

     (8     1        (9     (2
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), net of tax

     13        (1     15        4   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

     555        290        903        406   

Less: comprehensive loss attributable to noncontrolling interest

     (1     (1     (1     (1
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income attributable to SLM Corporation

   $ 556      $ 291      $ 904      $ 407   
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

4


Table of Contents

SLM CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Dollars in millions, except share and per share amounts)

(Unaudited)

 

    Preferred
Stock
Shares
    Common Stock Shares     Preferred
Stock
    Common
Stock
    Additional
Paid-In
Capital
    Accumulated
Other
Comprehensive
Income (Loss)
    Retained
Earnings
    Treasury
Stock
    Total
Stockholders’
Equity
    Noncontrolling
Interest
    Total
Equity
 
      Issued     Treasury     Outstanding                    

Balance at March 31, 2012

    7,300,000        532,246,806        (39,084,156     493,162,650      $ 565      $ 106      $ 4,182      $ (9   $ 814      $ (620   $ 5,038      $ 8      $ 5,046   

Comprehensive income:

                         

Net income (loss)

                                                    292              292        (1     291   

Other comprehensive income, net of tax

                                              (1                 (1           (1
                     

 

 

   

 

 

   

 

 

 

Total comprehensive income

                                                                291        (1     290   

Cash dividends:

                         

Common stock ($.125 per share)

                                                    (61           (61           (61

Preferred stock, series A ($.87 per share)

                                                    (3           (3           (3

Preferred stock, series B ($.56 per share)

                                                    (2           (2           (2

Issuance of common shares

          426,168              426,168              1        4                          5              5   

Stock-based compensation expense

                                        10                          10              10   

Common stock repurchased

                (23,836,964     (23,836,964                                   (341     (341           (341

Shares repurchased related to employee stock-based compensation plans

                (349,655     (349,655                                   (6     (6           (6
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2012

    7,300,000        532,672,974        (63,270,775     469,402,199      $ 565      $ 107      $ 4,196      $ (10   $ 1,040      $ (967   $ 4,931      $ 7      $ 4,938   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at March 31, 2013

    7,300,000        539,665,760        (95,455,400     444,210,360      $ 565      $ 108      $ 4,291      $ (4   $ 1,723      $ (1,535   $ 5,148      $ 6      $ 5,154   

Comprehensive income:

                         

Net income (loss)

                                                    543              543        (1     542   

Other comprehensive income, net of tax

                                              13                    13              13   
                     

 

 

   

 

 

   

 

 

 

Total comprehensive income

                                                                556        (1     555   

Cash dividends:

                         

Common stock ($.15 per share)

                                                    (66           (66           (66

Preferred stock, series A ($.87 per share)

                                                    (3           (3           (3

Preferred stock, series B ($.52 per share)

                                                    (2           (2           (2

Issuance of common shares

          4,115,424              4,115,424              1        50                          51              51   

Tax benefit related to employee stock-based compensation plans

                                          4                         4              4   

Stock-based compensation expense

                                        10                          10              10   

Common stock repurchased

                (9,096,144     (9,096,144                                   (201     (201           (201

Shares repurchased related to employee stock-based compensation plans

                (3,040,788     (3,040,788                                   (68     (68           (68
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2013

    7,300,000        543,781,184        (107,592,332     436,188,852      $ 565      $ 109      $ 4,355      $ 9      $ 2,195      $ (1,804   $ 5,429      $ 5      $ 5,434   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

5


Table of Contents

SLM CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Dollars in millions, except share and per share amounts)

(Unaudited)

 

    Preferred
Stock
Shares
    Common Stock Shares     Preferred
Stock
    Common
Stock
    Additional
Paid-In
Capital
    Accumulated
Other
Comprehensive
Income (Loss)
    Retained
Earnings
    Treasury
Stock
    Total
Stockholders’
Equity
    Noncontrolling
Interest
    Total
Equity
 
      Issued     Treasury     Outstanding                    

Balance at December 31, 2011

    7,300,000        529,075,322        (20,323,997     508,751,325      $ 565      $ 106      $ 4,136      $ (14   $ 770      $ (320   $ 5,243      $ 8      $ 5,251   

Comprehensive income:

                         

Net income (loss)

                                                    403              403        (1     402   

Other comprehensive income, net of tax

                                              4                    4              4   
                     

 

 

   

 

 

   

 

 

 

Total comprehensive income

                                                                407        (1     406   

Cash dividends:

                         

Common stock ($.25 per share)

                                                    (123           (123           (123

Preferred stock, series A ($1.74 per share)

                                                    (6           (6           (6

Preferred stock, series B ($1.13 per share)

                                                    (4           (4           (4

Issuance of common shares

          3,597,652              3,597,652              1        31                          32              32   

Tax benefit related to employee stock-based compensation plans

                                        (3                       (3           (3

Stock-based compensation expense

                                        32                          32              32   

Common stock repurchased

                (40,540,146     (40,540,146                                   (609     (609           (609

Shares repurchased related to employee stock-based compensation plans

                (2,406,632     (2,406,632                                   (38     (38           (38
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2012

    7,300,000        532,672,974        (63,270,775     469,402,199      $ 565      $ 107      $ 4,196      $ (10   $ 1,040      $ (967   $ 4,931      $ 7      $ 4,938   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2012

    7,300,000        535,507,965        (82,910,021     452,597,944      $ 565      $ 107      $ 4,237      $ (6   $ 1,451      $ (1,294   $ 5,060      $ 6      $ 5,066   

Comprehensive income:

                         

Net income (loss)

                                                    889              889        (1     888   

Other comprehensive income, net of tax

                                              15                    15              15   
                     

 

 

   

 

 

   

 

 

 

Total comprehensive income

                                                                904        (1     903   

Cash dividends:

                         

Common stock ($.30 per share)

                                                    (134           (134           (134

Preferred stock, series A ($1.74 per share)

                                                    (6           (6           (6

Preferred stock, series B ($1.01 per share)

                                                    (4           (4           (4

Dividend equivalent units related to employee stock-based compensation plans

                                                    (1           (1           (1

Issuance of common shares

          8,273,219              8,273,219              2        84                          86              86   

Tax benefit related to employee stock-based compensation plans

                                        5                          5              5   

Stock-based compensation expense

                                        29                          29              29   

Common stock repurchased

                (19,316,948     (19,316,948                                   (400     (400           (400

Shares repurchased related to employee stock-based compensation plans

                (5,365,363     (5,365,363                                   (110     (110           (110
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2013

    7,300,000        543,781,184        (107,592,332     436,188,852      $ 565      $ 109      $ 4,355      $ 9      $ 2,195      $ (1,804   $ 5,429      $ 5      $ 5,434   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

6


Table of Contents

SLM CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in millions)

(Unaudited)

 

                             
     Six Months Ended
June 30,
 
       2013         2012    

Operating activities

    

Net income

   $ 888      $ 402   

Adjustments to reconcile net income to net cash provided by operating activities:

    

(Income) loss from discontinued operations, net of tax

     (33     6   

Gains on sales of loans and investments

     (307       

Gains on debt repurchases

     (42     (58

Goodwill and acquired intangible asset impairment and amortization expense

     7        9   

Stock-based compensation expense

     29        32   

Unrealized (gains) losses on derivative and hedging activities

     (330     (1

Provisions for loan losses

     442        496   

(Increase) decrease in restricted cash — other

     (6     1   

(Increase) decrease in accrued interest receivable

     (42     104   

Increase in accrued interest payable

     6        29   

Decrease in other assets

     504        32   

(Decrease) increase in other liabilities

     (200     92   
  

 

 

   

 

 

 

Cash provided by operating activities – continuing operations

     916        1,144   
  

 

 

   

 

 

 

Cash provided by (used in) operating activities – discontinued operations

     38        (6
  

 

 

   

 

 

 

Total net cash provided by operating activities

     954        1,138   
  

 

 

   

 

 

 

Investing activities

    

Student loans acquired and originated

     (2,078     (3,826

Reduction of student loans:

    

Installment payments, claims and other

     6,265        8,479   

Proceeds from sales of student loans

     707        284   

Other investing activities, net

     115          

Purchases of available-for-sale securities

     (24     (22

Proceeds from maturities of available-for-sale securities

     20        44   

Purchases of other securities

     (144     (148

Proceeds from maturities of other securities

     133        128   

Decrease (increase) in restricted cash – variable interest entities

     611        (994
  

 

 

   

 

 

 

Total net cash provided by investing activities

     5,605        3,945   
  

 

 

   

 

 

 

Financing activities

    

Borrowings collateralized by loans in trust — issued

     6,187        6,894   

Borrowings collateralized by loans in trust — repaid

     (6,439     (6,849

Asset-backed commercial paper conduits, net

     4,349        1,233   

ED Conduit Program facility, net

     (9,551     (5,835

Other short-term borrowings issued

            23   

Other short-term borrowings repaid

     (893     (64

Other long-term borrowings issued

     1,489        1,927   

Other long-term borrowings repaid

     (1,403     (1,782

Other financing activities, net

     (766     94   

Retail and other deposits, net

     439        244   

Common stock repurchased

     (400     (609

Common stock dividends paid

     (134     (123

Preferred stock dividends paid

     (10     (10
  

 

 

   

 

 

 

Net cash used in financing activities

     (7,132     (4,857
  

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

     (573     226   

Cash and cash equivalents at beginning of period

     3,900        2,794   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 3,327      $ 3,020   
  

 

 

   

 

 

 

Supplemental disclosures of cash flow information:

    

Cash disbursements made (refunds received) for:

    

Interest

   $ 1,121      $ 1,276   
  

 

 

   

 

 

 

Income taxes paid

   $ 282      $ 310   
  

 

 

   

 

 

 

Income taxes received

   $ (18   $ (5
  

 

 

   

 

 

 

Noncash activity:

    

Investing activity — Student loans and other assets acquired

   $      $ 402   
  

 

 

   

 

 

 

Student loans and other assets removed related to sale of Residual Interest in securitization

   $ (11,802   $   
  

 

 

   

 

 

 

Financing activity — Borrowings assumed in acquisition of student loans and other assets

   $      $ 425   
  

 

 

   

 

 

 

Borrowings removed related to sale of Residual Interest in securitization

   $ (12,084   $   
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

7


Table of Contents

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2013 and for the three and six months ended

June 30, 2013 and 2012 is unaudited)

 

1. Significant Accounting Policies

Basis of Presentation

The accompanying unaudited, consolidated financial statements of SLM Corporation (“we,” “us,” “our,” or the “Company”) 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. The consolidated financial statements include the accounts of SLM Corporation and its majority-owned and controlled subsidiaries and those Variable Interest Entities (“VIEs”) for which we are the primary beneficiary, after eliminating the effects of intercompany accounts and transactions. 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 six months ended June 30, 2013 are not necessarily indicative of the results for the year ending December 31, 2013 or for any other period. These unaudited financial statements should be read in conjunction with the audited financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2012 (the “2012 Form 10-K”). Definitions for certain capitalized terms used in this document can be found in the 2012 Form 10-K.

Consolidation

In first six months of 2013, we sold Residual Interests in FFELP Loan securitization trusts to third parties. We will continue to service the student loans in the trusts under existing agreements. Prior to the sale of the Residual Interests, we had consolidated the trusts as VIEs because we had met the two criteria for consolidation. We had determined we were the primary beneficiary because (1) as servicer to the trust we had the power to direct the activities of the VIE that most significantly affected its economic performance and (2) as the residual holder of the trust, we had an obligation to absorb losses or receive benefits of the trust that could potentially be significant. Upon the sale of the Residual Interests we are no longer the residual holder, thus we determined we no longer met criterion (2) above and deconsolidated the trusts. As a result of these transactions, we removed securitization trust assets of $12.5 billion and the related liabilities of $12.1 billion from the balance sheet and recorded a $312 million gain as part of “gains on sales of loans and investments” for the six months ended June 30, 2013.

Reclassifications

Certain reclassifications have been made to the balances as of and for the three and six months ended June 30, 2012 to be consistent with classifications adopted for 2013, and had no effect on net income, total assets, or total liabilities.

Recently Adopted Accounting Standards

Accumulated Other Comprehensive Income

On January 1, 2013, we adopted Accounting Standards Update No. 2013-02, Comprehensive Income (Topic 220), “Reporting Amounts Reclassified out of Accumulated Other Comprehensive Income.” The objective of this new guidance is to improve the reporting of reclassifications out of accumulated other comprehensive income. The impact of adopting this new guidance was immaterial and there was no impact on our results of operations.

 

8


Table of Contents

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

2. Allowance for Loan Losses

Our provisions for loan losses represent the periodic expense of maintaining an allowance sufficient to absorb incurred probable 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 may be susceptible to significant changes. We believe that the allowance for loan losses is appropriate to cover probable losses incurred in the loan portfolios. We segregate our Private Education Loan portfolio into two classes of loans — traditional and non-traditional. Non-traditional loans are loans to (i) customers attending for-profit schools with an original Fair Isaac and Company (“FICO”) score of less than 670 and (ii) customers attending not-for-profit schools with an original FICO score of less than 640. The FICO score used in determining whether a loan is non-traditional is the greater of the customer or cosigner FICO score at origination. Traditional loans are defined as all other Private Education Loans that are not classified as non-traditional.

Allowance for Loan Losses Metrics

     Three Months Ended June 30, 2013  

(Dollars in millions)

   FFELP Loans     Private Education
Loans
    Other
Loans
    Total  

Allowance for Loan Losses

        

Beginning balance

   $ 147      $ 2,170      $ 42      $ 2,359   

Total provision

     14        187               201   

Charge-offs(1)

     (20     (212     (7     (239

Student loan sales

     (8                   (8

Reclassification of interest reserve(2)

            4               4   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 133      $ 2,149      $ 35      $ 2,317   
  

 

 

   

 

 

   

 

 

   

 

 

 

Allowance:

        

Ending balance: individually evaluated for impairment

   $      $ 1,181      $ 26      $ 1,207   

Ending balance: collectively evaluated for impairment

   $ 133      $ 968      $ 9      $ 1,110   

Loans:

        

Ending balance: individually evaluated for impairment

   $      $ 8,416      $ 57      $ 8,473   

Ending balance: collectively evaluated for impairment

   $ 107,538      $ 31,601      $ 96      $ 139,235   

Charge-offs as a percentage of average loans in repayment (annualized)

     .10     2.69     17.57  

Charge-offs as a percentage of average loans in repayment and forbearance (annualized)

     .08     2.59     17.57  

Allowance as a percentage of the ending total loan balance

     .12     5.37     22.93  

Allowance as a percentage of the ending loans in repayment

     .17     6.80     22.93  

Allowance coverage of charge-offs (annualized)

     1.7        2.5        1.2     

Ending total loans(3)

   $ 107,538      $ 40,017      $ 153     

Average loans in repayment

   $ 81,423      $ 31,618      $ 161     

Ending loans in repayment

   $ 77,063      $ 31,627      $ 153     

 

  (1) 

Charge-offs are reported net of expected recoveries. For Private Education Loans, the expected recovery amount is transferred to the receivable for partially charged-off loan balance. Charge-offs include charge-offs against the receivable for partially charged-off loans which represents the difference between what was expected to be collected and any shortfalls in what was actually collected in the period. See “Receivable for Partially Charged-Off Private Education Loans” for further discussion.

 

  (2) 

Represents the additional allowance related to the amount of uncollectible interest reserved within interest income that is transferred in the period to the allowance for loan losses when interest is capitalized to a loan’s principal balance.

 

  (3) 

Ending total loans for Private Education Loans includes the receivable for partially charged-off loans.

 

9


Table of Contents

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

2. Allowance for Loan Losses (continued)

 

     Three Months Ended June 30, 2012  

(Dollars in millions)

   FFELP Loans     Private Education
Loans
    Other
Loans
    Total  

Allowance for Loan Losses

        

Beginning balance

   $ 180      $ 2,190      $ 64      $ 2,434   

Total provision

     18        225               243   

Charge-offs(1)

     (23     (235     (5     (263

Student loan sales

     (2                   (2

Reclassification of interest reserve(2)

            6               6   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 173      $ 2,186      $ 59      $ 2,418   
  

 

 

   

 

 

   

 

 

   

 

 

 

Allowance:

        

Ending balance: individually evaluated for impairment

   $      $ 921      $ 45      $ 966   

Ending balance: collectively evaluated for impairment

   $ 173      $ 1,265      $ 14      $ 1,452   

Loans:

        

Ending balance: individually evaluated for impairment

   $      $ 6,569      $ 84      $ 6,653   

Ending balance: collectively evaluated for impairment

   $ 131,512      $ 32,905      $ 152      $ 164,569   

Charge-offs as a percentage of average loans in repayment (annualized)

     .10     3.09     9.80  

Charge-offs as a percentage of average loans in repayment and forbearance (annualized)

     .08     2.96     9.80  

Allowance as a percentage of the ending total loan balance

     .13     5.54     24.85  

Allowance as a percentage of the ending loans in repayment

     .19     7.11     24.85  

Allowance coverage of charge-offs (annualized)

     1.8        2.3        2.5     

Ending total loans(3)

   $ 131,512      $ 39,474      $ 236     

Average loans in repayment

   $ 92,436      $ 30,533      $ 241     

Ending loans in repayment

   $ 91,998      $ 30,731      $ 236     

 

  (1) 

Charge-offs are reported net of expected recoveries. For Private Education Loans, the expected recovery amount is transferred to the receivable for partially charged-off loan balance. Charge-offs include charge-offs against the receivable for partially charged-off loans which represents the difference between what was expected to be collected and any shortfalls in what was actually collected in the period. See “Receivable for Partially Charged-Off Private Education Loans” for further discussion.

 

  (2) 

Represents the additional allowance related to the amount of uncollectible interest reserved within interest income that is transferred in the period to the allowance for loan losses when interest is capitalized to a loan’s principal balance.

 

  (3) 

Ending total loans for Private Education Loans includes the receivable for partially charged-off loans.

 

10


Table of Contents

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

2. Allowance for Loan Losses (continued)

 

     Six Months Ended June 30, 2013  

(Dollars in millions)

   FFELP Loans     Private Education
Loans
    Other
Loans
    Total  

Allowance for Loan Losses

        

Beginning balance

   $ 159      $ 2,171      $ 47      $ 2,377   

Total provision

     30        412               442   

Charge-offs(1)

     (42     (444     (12     (498

Student loan sales

     (14                   (14

Reclassification of interest reserve(2)

            10               10   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 133      $ 2,149      $ 35      $ 2,317   
  

 

 

   

 

 

   

 

 

   

 

 

 

Allowance:

        

Ending balance: individually evaluated for impairment

   $      $ 1,181      $ 26      $ 1,207   

Ending balance: collectively evaluated for impairment

   $ 133      $ 968      $ 9      $ 1,110   

Loans:

        

Ending balance: individually evaluated for impairment

   $      $ 8,416      $ 57      $ 8,473   

Ending balance: collectively evaluated for impairment

   $ 107,538      $ 31,601      $ 96      $ 139,235   

Charge-offs as a percentage of average loans in repayment (annualized)

     .10     2.83     14.11  

Charge-offs as a percentage of average loans in repayment and forbearance (annualized)

     .09     2.73     14.11  

Allowance as a percentage of the ending total loan balance

     .12     5.37     22.93  

Allowance as a percentage of the ending loans in repayment

     .17     6.80     22.93  

Allowance coverage of charge-offs (annualized)

     1.6        2.4        1.5     

Ending total loans(3)

   $ 107,538      $ 40,017      $ 153     

Average loans in repayment

   $ 84,323      $ 31,631      $ 170     

Ending loans in repayment

   $ 77,063      $ 31,627      $ 153     

 

  (1) 

Charge-offs are reported net of expected recoveries. For Private Education Loans, the expected recovery amount is transferred to the receivable for partially charged-off loan balance. Charge-offs include charge-offs against the receivable for partially charged-off loans which represents the difference between what was expected to be collected and any shortfalls in what was actually collected in the period. See “Receivable for Partially Charged-Off Private Education Loans” for further discussion.

 

  (2) 

Represents the additional allowance related to the amount of uncollectible interest reserved within interest income that is transferred in the period to the allowance for loan losses when interest is capitalized to a loan’s principal balance.

 

  (3) 

Ending total loans for Private Education Loans includes the receivable for partially charged-off loans.

 

11


Table of Contents

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

2. Allowance for Loan Losses (continued)

 

     Six Months Ended June 30, 2012  

(Dollars in millions)

   FFELP Loans     Private Education
Loans
    Other
Loans
    Total  

Allowance for Loan Losses

        

Beginning balance

   $ 187      $ 2,171      $ 69      $ 2,427   

Total provision

     36        460              496   

Charge-offs(1)

     (46     (459     (10     (515

Student loan sales

     (4                 (4

Reclassification of interest reserve(2)

           14              14   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 173      $ 2,186      $ 59      $ 2,418   
  

 

 

   

 

 

   

 

 

   

 

 

 

Allowance:

        

Ending balance: individually evaluated for impairment

   $     $ 921      $ 45      $ 966   

Ending balance: collectively evaluated for impairment

   $ 173      $ 1,265      $ 14      $ 1,452   

Loans:

        

Ending balance: individually evaluated for impairment

   $     $ 6,569      $ 84      $ 6,653   

Ending balance: collectively evaluated for impairment

   $ 131,512      $ 32,905      $ 152      $ 164,569   

Charge-offs as a percentage of average loans in repayment (annualized)

     .10     3.03     8.41  

Charge-offs as a percentage of average loans in repayment and forbearance (annualized)

     .08     2.90     8.41  

Allowance as a percentage of the ending total loan balance

     .13     5.54     24.85  

Allowance as a percentage of the ending loans in repayment

     .19     7.11     24.85  

Allowance coverage of charge-offs (annualized)

     1.9        2.4        2.8     

Ending total loans(3)

   $ 131,512      $ 39,474      $ 236     

Average loans in repayment

   $ 92,793      $ 30,456      $ 248     

Ending loans in repayment

   $ 91,998      $ 30,731      $ 236     

 

  (1) 

Charge-offs are reported net of expected recoveries. For Private Education Loans, the expected recovery amount is transferred to the receivable for partially charged-off loan balance. Charge-offs include charge-offs against the receivable for partially charged-off loans which represents the difference between what was expected to be collected and any shortfalls in what was actually collected in the period. See “Receivable for Partially Charged-Off Private Education Loans” for further discussion.

 

  (2) 

Represents the additional allowance related to the amount of uncollectible interest reserved within interest income that is transferred in the period to the allowance for loan losses when interest is capitalized to a loan’s principal balance.

 

  (3) 

Ending total loans for Private Education Loans includes the receivable for partially charged-off loans.

 

12


Table of Contents

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

2. Allowance for Loan Losses (continued)

 

Key Credit Quality Indicators

FFELP Loans are substantially insured and guaranteed as to their principal and accrued interest in the event of default; therefore, the key credit quality indicator for this portfolio is loan status. The impact of changes in loan status is incorporated quarterly into the allowance for loan losses calculation.

For Private Education Loans, the key credit quality indicators are school type, FICO scores, the existence of a cosigner, the loan status and loan seasoning. The school type/FICO score are assessed at origination and maintained through the traditional/non-traditional loan designation. The other Private Education Loan key quality indicators can change and are incorporated quarterly into the allowance for loan losses calculation. The following table highlights the principal balance (excluding the receivable for partially charged-off loans) of our Private Education Loan portfolio stratified by the key credit quality indicators.

 

     Private Education Loans
Credit Quality Indicators
 
     June 30, 2013     December 31, 2012  

(Dollars in millions)

   Balance(3)      % of Balance     Balance(3)      % of Balance  

Credit Quality Indicators

          

School Type/FICO Scores:

          

Traditional

   $ 35,645         92   $ 35,347         92

Non-Traditional(1)

     3,038         8        3,207         8   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 38,683         100   $ 38,554         100
  

 

 

    

 

 

   

 

 

    

 

 

 

Cosigners:

          

With cosigner

   $ 25,448         66   $ 24,907         65

Without cosigner

     13,235         34        13,647         35   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 38,683         100   $ 38,554         100
  

 

 

    

 

 

   

 

 

    

 

 

 

Seasoning(2):

          

1-12 payments

   $ 7,132         19   $ 7,371         19

13-24 payments

     5,681         15        6,137         16   

25-36 payments

     5,878         15        6,037         16   

37-48 payments

     4,822         12        4,780         12   

More than 48 payments

     9,274         24        8,325         22   

Not yet in repayment

     5,896         15        5,904         15   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 38,683         100   $ 38,554         100
  

 

 

    

 

 

   

 

 

    

 

 

 

 

  (1) 

Defined as loans to customers attending for-profit schools (with a FICO score of less than 670 at origination) and customers attending not-for-profit schools (with a FICO score of less than 640 at origination).

 

  (2) 

Number of months in active repayment for which a scheduled payment was due.

 

  (3) 

Balance represents gross Private Education Loans.

 

13


Table of Contents

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

2. Allowance for Loan Losses (continued)

 

The following tables provide information regarding the loan status and aging of past due loans.

 

     FFELP Loan Delinquencies  
     June 30,
2013
    December 31,
2012
 

(Dollars in millions)

   Balance     %     Balance     %  

Loans in-school/grace/deferment(1)

   $ 15,239        $ 17,702     

Loans in forbearance(2)

     15,236          15,902     

Loans in repayment and percentage of each status:

        

    Loans current

     64,801        84.1     75,499        83.2

    Loans delinquent 31-60 days(3)

     3,750        4.9        4,710        5.2   

    Loans delinquent 61-90 days(3)

     2,156        2.8        2,788        3.1   

    Loans delinquent greater than 90 days(3)

     6,356        8.2        7,734        8.5   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total FFELP Loans in repayment

     77,063        100     90,731        100
  

 

 

   

 

 

   

 

 

   

 

 

 

Total FFELP Loans, gross

     107,538          124,335     

FFELP Loan unamortized premium

     1,086          1,436     
  

 

 

     

 

 

   

Total FFELP Loans

     108,624          125,771     

FFELP Loan allowance for losses

     (133       (159  
  

 

 

     

 

 

   

FFELP Loans, net

   $ 108,491        $ 125,612     
  

 

 

     

 

 

   

Percentage of FFELP Loans in repayment

       71.7       73.0
    

 

 

     

 

 

 

Delinquencies as a percentage of FFELP Loans in repayment

       15.9       16.8
    

 

 

     

 

 

 

FFELP Loans in forbearance as a percentage of loans in repayment and forbearance

       16.5       14.9
    

 

 

     

 

 

 

 

  (1) 

Loans for customers who may still 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, as well as loans for customers who have requested and qualify for other permitted program deferments such as military, unemployment, or economic hardships.

 

  (2) 

Loans for customers who have used their allowable deferment time or do not qualify for deferment, that need additional time to obtain employment or who have temporarily ceased making full payments due to hardship or other factors.

 

  (3) 

The period of delinquency is based on the number of days scheduled payments are contractually past due.

 

14


Table of Contents

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

2. Allowance for Loan Losses (continued)

 

     Private Education Traditional Loan
Delinquencies
 
     June 30,
2013
    December 31,
2012
 

(Dollars in millions)

   Balance     %     Balance     %  

Loans in-school/grace/deferment(1)

   $ 5,475        $ 5,421     

Loans in forbearance(2)

     1,015          996     

Loans in repayment and percentage of each status:

        

    Loans current

     27,218        93.3     26,597        91.9

    Loans delinquent 31-60 days(3)

     650        2.2        837        2.9   

    Loans delinquent 61-90 days(3)

     395        1.4        375        1.3   

    Loans delinquent greater than 90 days(3)

     892        3.1        1,121        3.9   
  

 

 

   

 

 

   

 

 

   

 

 

 

    Total traditional loans in repayment

     29,155        100     28,930        100
  

 

 

   

 

 

   

 

 

   

 

 

 

Total traditional loans, gross

     35,645          35,347     

Traditional loans unamortized discount

     (673       (713  
  

 

 

     

 

 

   

Total traditional loans

     34,972          34,634     

Traditional loans receivable for partially charged-off loans

     800          797     

Traditional loans allowance for losses

     (1,629       (1,637  
  

 

 

     

 

 

   

Traditional loans, net

   $ 34,143        $ 33,794     
  

 

 

     

 

 

   

Percentage of traditional loans in repayment

       81.8       81.9
    

 

 

     

 

 

 

Delinquencies as a percentage of traditional loans in repayment

       6.6       8.1
    

 

 

     

 

 

 

Loans in forbearance as a percentage of loans in repayment and forbearance

       3.4       3.3
    

 

 

     

 

 

 

 

  (1) 

Deferment includes customers who have returned to school or are engaged 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 customers 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.

 

15


Table of Contents

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

2. Allowance for Loan Losses (continued)

 

     Private Education Non-Traditional
Loan Delinquencies
 
     June 30,
2013
    December 31,
2012
 

(Dollars in millions)

   Balance     %     Balance     %  

Loans in-school/grace/deferment(1)

   $ 421        $ 483     

Loans in forbearance(2)

     145          140     

Loans in repayment and percentage of each status:

        

    Loans current

     1,978        80.1     1,978        76.5

    Loans delinquent 31-60 days(3)

     142        5.7        175        6.8   

    Loans delinquent 61-90 days(3)

     100        4.0        106        4.1   

    Loans delinquent greater than 90 days(3)

     252        10.2        325        12.6   
  

 

 

   

 

 

   

 

 

   

 

 

 

    Total non-traditional loans in repayment

     2,472        100     2,584        100
  

 

 

   

 

 

   

 

 

   

 

 

 

Total non-traditional loans, gross

     3,038          3,207     

Non-traditional loans unamortized discount

     (79       (83  
  

 

 

     

 

 

   

Total non-traditional loans

     2,959          3,124     

Non-traditional loans receivable for partially charged-off loans

     534          550     

Non-traditional loans allowance for losses

     (520       (534  
  

 

 

     

 

 

   

Non-traditional loans, net

   $ 2,973        $ 3,140     
  

 

 

     

 

 

   

Percentage of non-traditional loans in repayment

       81.4       80.6
    

 

 

     

 

 

 

Delinquencies as a percentage of non-traditional loans in repayment

       20.0       23.4
    

 

 

     

 

 

 

Loans in forbearance as a percentage of loans in repayment and forbearance

       5.5       5.1
    

 

 

     

 

 

 

 

  (1) 

Deferment includes customers who have returned to school or are engaged 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 customers 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.

 

16


Table of Contents

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

2. Allowance for Loan Losses (continued)

 

Receivable for Partially Charged-Off Private Education Loans

At the end of each month, for loans that are 212 days past due, we charge off the estimated loss of a defaulted loan balance. Actual recoveries are applied against the remaining loan balance that was not charged off. We refer to this remaining loan balance as the “receivable for partially charged-off loans.” If actual periodic recoveries are less than expected, the difference is immediately charged off through the allowance for loan losses with an offsetting reduction in the receivable for partially charged-off Private Education Loans. If actual periodic recoveries are greater than expected, they will be reflected as a recovery through the allowance for Private Education Loan losses once the cumulative recovery amount exceeds the cumulative amount originally expected to be recovered. Private Education Loans which defaulted between 2008 and 2012 for which we have previously charged off estimated losses have, to varying degrees, not met our post-default recovery expectations to date and may continue not to do so. According to our policy, we have been charging off these periodic shortfalls in expected recoveries against our allowance for Private Education Loan losses and the related receivable for partially charged-off Private Education Loans and we will continue to do so. There was $217 million and $141 million in allowance for Private Education Loan losses at June 30, 2013 and 2012, respectively, providing for possible additional future charge-offs related to the receivable for partially charged-off Private Education Loans.

The following table summarizes the activity in the receivable for partially charged-off Private Education Loans.

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 

(Dollars in millions)

   2013     2012     2013     2012  

Receivable at beginning of period

   $ 1,339      $ 1,250      $ 1,347      $ 1,241   

Expected future recoveries of current period defaults(1)

     70        82        148        151   

Recoveries(2)

     (54     (44     (122     (94

Charge-offs(3)

     (21     (11     (39     (21
  

 

 

   

 

 

   

 

 

   

 

 

 

Receivable at end of period

     1,334        1,277        1,334        1,277   

Allowance for estimated recovery shortfalls(4)

     (217     (141     (217     (141
  

 

 

   

 

 

   

 

 

   

 

 

 

Net receivable at end of period

   $ 1,117      $ 1,136      $ 1,117      $ 1,136   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

  (1) 

Represents the difference between the loan balance and our estimate of the amount to be collected in the future.

 

  (2) 

Current period cash collections.

 

  (3) 

Represents the current period recovery shortfall — the difference between what was expected to be collected and what was actually collected. These amounts are included in the Private Education Loan total charge-offs as reported in the “Allowance for Loan Losses Metrics” tables.

 

  (4) 

The allowance for estimated recovery shortfalls of the receivable for partially charged-off Private Education Loans is a component of the $2.1 billion and $2.2 billion overall allowance for Private Education Loan losses as of June 30, 2013 and 2012, respectively.

Troubled Debt Restructurings (“TDRs”)

We modify the terms of loans for certain customers when we believe such modifications may increase the ability and willingness of a customer to make payments and thus increase the ultimate overall amount collected on a loan. These modifications generally take the form of a forbearance, a temporary interest rate reduction or an extended repayment plan. For customers experiencing financial difficulty, certain Private Education Loans for which we have granted either cumulative forbearance of greater than three months, an interest rate reduction or

 

17


Table of Contents

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

2. Allowance for Loan Losses (continued)

 

an extended repayment plan are classified as TDRs. Forbearance provides customers the ability to defer payments for a period of time, but does not result in the forgiveness of any principal or interest. While in forbearance status, interest continues to accrue and is capitalized to principal when the loan re-enters repayment status. At June 30, 2013 and December 31, 2012, the percentage of loans granted forbearance that have migrated to a TDR classification due to the extension of the original forbearance period was 48 percent and 43 percent, respectively. The unpaid principal balance of TDR loans that were in an interest rate reduction plan as of June 30, 2013 and December 31, 2012 was $1.5 billion and $1.0 billion, respectively.

At June 30, 2013 and December 31, 2012, all of our TDR loans had a related allowance recorded. The following table provides the recorded investment, unpaid principal balance and related allowance for our TDR loans.

 

     TDR Loans  

(Dollars in millions)

   Recorded
Investment(1)
     Unpaid
Principal
Balance
     Related
Allowance
 

June 30, 2013

        

Private Education Loans — Traditional

   $ 6,728       $ 6,807       $ 901   

Private Education Loans — Non-Traditional

     1,366         1,376         280   
  

 

 

    

 

 

    

 

 

 

Total

   $ 8,094       $ 8,183       $ 1,181   
  

 

 

    

 

 

    

 

 

 

December 31, 2012

        

Private Education Loans — Traditional

   $ 5,999       $ 6,074       $ 844   

Private Education Loans — Non-Traditional

     1,295         1,303         282   
  

 

 

    

 

 

    

 

 

 

Total

   $ 7,294       $ 7,377       $ 1,126   
  

 

 

    

 

 

    

 

 

 

 

  (1) 

The recorded investment is equal to the unpaid principal balance and accrued interest receivable net of unamortized deferred fees and costs.

The following table provides the average recorded investment and interest income recognized for our TDR loans.

 

     Three Months Ended June 30,  
     2013      2012  

(Dollars in millions)

   Average
Recorded
Investment
     Interest
Income
Recognized
     Average
Recorded
Investment
     Interest
Income
Recognized
 

Private Education Loans — Traditional

   $ 6,718       $ 100       $ 5,036       $ 81   

Private Education Loans — Non-Traditional

     1,412         27         1,206         26   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 8,130       $ 127       $ 6,242       $ 107   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Six Months Ended June 30,  
     2013      2012  

(Dollars in millions)

   Average
Recorded
Investment
     Interest
Income
Recognized
     Average
Recorded
Investment
     Interest
Income
Recognized
 

Private Education Loans — Traditional

   $ 6,524       $ 196       $ 4,772       $ 154   

Private Education Loans — Non-Traditional

     1,391         54         1,158         51   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 7,915       $ 250       $ 5,930       $ 205   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

18


Table of Contents

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

2. Allowance for Loan Losses (continued)

 

The following table provides information regarding the loan status and aging of TDR loans that are past due.

 

     TDR Loan Delinquencies  
     June 30, 2013     December 31, 2012  

(Dollars in millions)

   Balance      %     Balance      %  

Loans in deferment(1)

   $ 656         $ 574      

Loans in forbearance(2)

     649           544      

Loans in repayment and percentage of each status:

          

Loans current

     5,365         78.0     4,619         73.8

Loans delinquent 31-60 days(3)

     450         6.5        478         7.6   

Loans delinquent 61-90 days(3)

     308         4.5        254         4.1   

Loans delinquent greater than 90 days(3)

     755         11.0        908         14.5   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total TDR loans in repayment

     6,878         100     6,259         100
  

 

 

    

 

 

   

 

 

    

 

 

 

Total TDR loans, gross

   $ 8,183         $ 7,377      
  

 

 

      

 

 

    

 

  (1) 

Loans for customers who have requested and qualify for permitted program deferments such as military, unemployment, or economic hardships.

 

  (2) 

Loans for customers 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.

The following table provides the amount of modified loans that resulted in a TDR in the periods presented. Additionally, the table summarizes charge-offs occurring in the TDR portfolio, as well as TDRs for which a payment default occurred in the current period within 12 months of the loan first being designated as a TDR. We define payment default as 60 days past due for this disclosure. The majority of our loans that are considered TDRs involve a temporary forbearance of payments and do not change the contractual interest rate of the loan.

 

     Three Months Ended June 30,  
     2013      2012  

(Dollars in millions)

   Modified
Loans(1)
     Charge-
Offs(2)
     Payment
Default
     Modified
Loans(1)
     Charge-
Offs(2)
     Payment
Default
 

Private Education Loans — Traditional

   $ 491       $ 84       $ 159       $ 554       $ 82       $ 376   

Private Education Loans — Non-Traditional

     75         31         45         104         33         124   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $    566       $ 115       $ 204       $ 658       $ 115       $    500   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     Six Months Ended June 30,  
     2013      2012  

(Dollars in millions)

   Modified
Loans(1)
     Charge-
Offs(2)
     Payment
Default
     Modified
Loans(1)
     Charge-
Offs(2)
     Payment
Default
 

Private Education Loans — Traditional

   $ 1,036       $ 181       $ 375       $ 1,210       $ 148       $ 780   

Private Education Loans — Non-Traditional

     165         65         101         245         62         252   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,201       $ 246       $ 476       $ 1,455       $ 210       $ 1,032   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) 

Represents period ending balance of loans that have been modified during the period and resulted in a TDR.

 

(2) 

Represents loans that charged off that were classified as TDRs.

 

19


Table of Contents

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

2. Allowance for Loan Losses (continued)

 

Accrued Interest Receivable

The following table provides information regarding accrued interest receivable on our Private Education Loans. The table also discloses the amount of accrued interest on loans greater than 90 days past due as compared to our allowance for uncollectible interest. The allowance for uncollectible interest exceeds the amount of accrued interest on our 90 days past due portfolio for all periods presented.

 

     Accrued Interest Receivable  

(Dollars in millions)

   Total      Greater Than
90 Days
Past Due
     Allowance for
Uncollectible
Interest
 

June 30, 2013

        

Private Education Loans — Traditional

   $ 838       $ 32       $ 47   

Private Education Loans — Non-Traditional

     90         12         22   
  

 

 

    

 

 

    

 

 

 

Total

   $ 928       $ 44       $ 69   
  

 

 

    

 

 

    

 

 

 

December 31, 2012

        

Private Education Loans — Traditional

   $ 798       $ 39       $ 45   

Private Education Loans — Non-Traditional

     106         16         22   
  

 

 

    

 

 

    

 

 

 

Total

   $ 904       $ 55       $ 67   
  

 

 

    

 

 

    

 

 

 

 

3. Borrowings

The following table summarizes our borrowings.

 

     June 30, 2013      December 31, 2012  

(Dollars in millions)

   Short
Term
     Long
Term
     Total      Short
Term
     Long
Term
     Total  

Unsecured borrowings:

                 

Senior unsecured debt

   $ 3,063       $ 14,433       $ 17,496       $ 2,319       $ 15,446       $ 17,765   

Brokered deposits

     1,298         2,247         3,545         979         3,088         4,067   

Retail and other deposits

     3,686                 3,686         3,247                 3,247   

Other(1)

     825                 825         1,609                 1,609   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total unsecured borrowings

     8,872         16,680         25,552         8,154         18,534         26,688   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Secured borrowings:

                 

FFELP Loan securitizations

             92,428         92,428                 105,525         105,525   

Private Education Loan securitizations

             20,594         20,594                 19,656         19,656   

ED Conduit Program Facility

                             9,551                 9,551   

FFELP ABCP Facilities

     6,524         2,816         9,340                 4,154         4,154   

Private Education Loan ABCP Facility

                                     1,070         1,070   

Acquisition financing(2)

             505         505                 673         673   

FHLB-DM Facility

     1,115         1,220         2,335         2,100                 2,100   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total secured borrowings

     7,639         117,563         125,202         11,651         131,078         142,729   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total before hedge accounting adjustments

     16,511         134,243         150,754         19,805         149,612         169,417   

Hedge accounting adjustments

     47         1,636         1,683         51         2,789         2,840   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 16,558       $ 135,879       $ 152,437       $ 19,856       $ 152,401       $ 172,257   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) 

“Other” primarily consists of the obligation to return cash collateral held related to derivative exposures.

(2) 

Relates to the acquisition of $25 billion of student loans at the end of 2010.

 

20


Table of Contents

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

3. Borrowings (continued)

 

Secured Borrowings

The tables below summarize all of our financing entities that are VIEs which we consolidate as a result of being the entities’ primary beneficiary. As such, these financing VIEs are accounted for as secured borrowings. We consolidate the following financing VIEs:

 

     June 30, 2013  
     Debt Outstanding      Carrying Amount of Assets Securing
Debt Outstanding
 

(Dollars in millions)

   Short
Term
     Long
Term
     Total      Loans      Cash      Other Assets      Total  

Secured Borrowings — VIEs:

                    

FFELP Loan securitizations

   $       $ 92,428       $ 92,428       $ 93,988       $ 3,177       $ 649       $ 97,814   

Private Education Loan securitizations

             20,594         20,594         26,084         413         540         27,037   

FFELP ABCP Facilities

     6,524         2,816         9,340         9,674         108         176         9,958   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total before hedge accounting adjustments

     6,524         115,838         122,362         129,746         3,698         1,365         134,809   

Hedge accounting adjustments

             666         666                         476         476   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 6,524       $ 116,504