10-Q 1 d589070d10q.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 September 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 September 30, 2013

Common Stock, $0.20 par value

   436,264,071 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

     44   

Item 3.

  

Quantitative and Qualitative Disclosures about Market Risk

     90   

Item 4.

  

Controls and Procedures

     94   

PART II. Other Information

  

Item 1.

  

Legal Proceedings

     95   

Item 1A.

  

Risk Factors

     96   

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

     98   

Item 3.

  

Defaults Upon Senior Securities

     98   

Item 4.

  

Mine Safety Disclosures

     98   

Item 5.

  

Other Information

     98   

Item 6.

  

Exhibits

     98   

 

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)

 

     September 30,
2013
    December 31,
2012
 

Assets

    

FFELP Loans (net of allowance for losses of $130 and $159, respectively)

   $ 106,350      $ 125,612   

Private Education Loans (net of allowance for losses of $2,144 and $2,171 respectively)

     37,752        36,934   

Investments

    

Available-for-sale

     85        72   

Other

     911        1,010   
  

 

 

   

 

 

 

Total investments

     996        1,082   

Cash and cash equivalents

     4,329        3,900   

Restricted cash and investments

     4,287        5,011   

Goodwill and acquired intangible assets, net

     436        448   

Other assets

     7,420        8,273   
  

 

 

   

 

 

 

Total assets

   $ 161,570      $ 181,260   
  

 

 

   

 

 

 

Liabilities

    

Short-term borrowings

   $ 15,572      $ 19,856   

Long-term borrowings

     136,944        152,401   

Other liabilities

     3,422        3,937   
  

 

 

   

 

 

 

Total liabilities

     155,938        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

     4,373        4,237   

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

     8        (6

Retained earnings

     2,385        1,451   
  

 

 

   

 

 

 

Total SLM Corporation stockholders’ equity before treasury stock

     7,440        6,354   

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

     (1,813     (1,294
  

 

 

   

 

 

 

Total SLM Corporation stockholders’ equity

     5,627        5,060   

Noncontrolling interest

     5        6   
  

 

 

   

 

 

 

Total equity

     5,632        5,066   
  

 

 

   

 

 

 

Total liabilities and equity

   $ 161,570      $ 181,260   
  

 

 

   

 

 

 

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

 

     September 30,
2013
     December 31,
2012
 

FFELP Loans

   $ 101,627       $ 121,059   

Private Education Loans

     26,018         26,072   

Restricted cash and investments

     4,044         4,826   

Other assets

     2,380         2,312   

Short-term borrowings

     4,678         9,551   

Long-term borrowings

     116,968         131,518   
  

 

 

    

 

 

 

Net assets of consolidated variable interest entities

   $ 12,423       $ 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
September 30,
    Nine Months Ended
September 30,
 
       2013         2012         2013         2012    

Interest income:

        

FFELP Loans

   $ 698      $ 840      $ 2,138      $ 2,459   

Private Education Loans

     635        615        1,884        1,856   

Other loans

     3        4        9        13   

Cash and investments

     4        5        13        16   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest income

     1,340        1,464        4,044        4,344   

Total interest expense

     541        645        1,666        1,968   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income

     799        819        2,378        2,376   

Less: provisions for loan losses

     207        270        649        766   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income after provisions for loan losses

     592        549        1,729        1,610   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other income (loss):

        

Gains on sales of loans and investments

                   307        1   

Losses on derivative and hedging activities, net

     (127     (233     (140     (600

Servicing revenue

     83        71        223        212   

Contingency revenue

     104        85        312        261   

Gains on debt repurchases

            44        42        102   

Other

     9        2        66        39   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (loss)

     69        (31     810        15   
  

 

 

   

 

 

   

 

 

   

 

 

 

Expenses:

        

Salaries and benefits

     128        113        380        343   

Other operating expenses

     129        107        357        329   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     257        220        737        672   

Goodwill and acquired intangible asset impairment and amortization expense

     4        5        10        13   

Restructuring and other reorganization expenses

     12        2        46        9   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     273        227        793        694   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations, before income tax expense

     388        291        1,746        931   

Income tax expense

     136        104        645        340   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income from continuing operations

     252        187        1,101        591   

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

     8               47        (2
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     260        187        1,148        589   

Less: net loss attributable to noncontrolling interest

            (1     (1     (2
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to SLM Corporation

     260        188        1,149        591   

Preferred stock dividends

     5        5        15        15   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to SLM Corporation common stock

   $ 255      $ 183      $ 1,134      $ 576   
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic earnings per common share attributable to SLM Corporation:

        

Continuing operations

   $ .56      $ .39      $ 2.46      $ 1.19   

Discontinued operations

     .02               .10          
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ .58      $ .39      $ 2.56      $ 1.19   
  

 

 

   

 

 

   

 

 

   

 

 

 

Average common shares outstanding

     436        464        442        483   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted earnings per common share attributable to SLM Corporation:

        

Continuing operations

   $ .55      $ .39      $ 2.42      $ 1.18   

Discontinued operations

     .02               .10          
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ .57      $ .39      $ 2.52      $ 1.18   
  

 

 

   

 

 

   

 

 

   

 

 

 

Average common and common equivalent shares outstanding

     445        471        450        490   
  

 

 

   

 

 

   

 

 

   

 

 

 

Dividends per common share attributable to SLM Corporation

   $ .15      $ .125      $ .45      $ .375   
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

3


Table of Contents

SLM CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(Unaudited)

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
       2013         2012           2013             2012      

Net income

   $ 260      $ 187      $ 1,148      $ 589   

Other comprehensive income (loss):

        

Unrealized gains (losses) on derivatives:

        

Unrealized hedging gains (losses) on derivatives

     (3     (3     19        (14

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

     1        6        7        22   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total unrealized gains (losses) on derivatives

     (2     3        26        8   

Unrealized gains (losses) on investments

                   (4     1   

Income tax (expense) benefit

     1        (1     (8     (3
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), net of tax

     (1     2        14        6   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

     259        189        1,162        595   

Less: comprehensive loss attributable to noncontrolling interest

            (1     (1     (2
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income attributable to SLM Corporation

   $ 259      $ 190      $ 1,163      $ 597   
  

 

 

   

 

 

   

 

 

   

 

 

 

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 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   

Comprehensive income:

                         

Net income (loss)

                                                    188              188        (1     187   

Other comprehensive income, net of tax

                                              2                    2              2   
                     

 

 

   

 

 

   

 

 

 

Total comprehensive income

                                                                190        (1     189   

Cash dividends:

                         

Common stock ($.125 per share)

                                                    (58           (58           (58

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

                                                    (3           (3           (3

Preferred stock, series B ($.57 per share)

                                                    (2           (2           (2

Issuance of common shares

          1,654,506              1,654,506                    17                          17              17   

Tax benefit related to employee stock-based compensation plans

                                        (2                       (2           (2

Stock-based compensation expense

                                        8                          8              8   

Common stock repurchased

                (7,643,999     (7,643,999                                   (121     (121           (121

Shares repurchased related to employee stock-based compensation plans

                (1,253,922     (1,253,922                                   (20     (20           (20
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2012

    7,300,000        534,327,480        (72,168,696     462,158,784      $ 565      $ 107      $ 4,219      $ (8   $ 1,165      $ (1,108   $ 4,940      $ 6      $ 4,946   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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   

Comprehensive income:

                         

Net income (loss)

                                                            260               260               260   

Other comprehensive income, net of tax

                                                     (1                   (1            (1
                     

 

 

   

 

 

   

 

 

 

Total comprehensive income

                                                                          259               259   

Cash dividends:

                         

Common stock ($.15 per share)

                                                            (65            (65            (65

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

                                                            (3            (3            (3

Preferred stock, series B ($.50 per share)

                                                            (2            (2            (2

Issuance of common shares

           326,789               326,789                      8                             8               8   

Tax benefit related to employee stock-based compensation plans

                                              2                             2               2   

Stock-based compensation expense

                                              8                             8               8   

Shares repurchased related to employee stock-based compensation plans

                  (251,570     (251,570                                        (9     (9            (9
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2013

    7,300,000        544,107,973        (107,843,902     436,264,071      $ 565      $ 109      $ 4,373      $ 8      $ 2,385      $ (1,813   $ 5,627      $ 5      $ 5,632   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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)

                                                            591               591        (2     589   

Other comprehensive income, net of tax

                                                     6                      6               6   
                     

 

 

   

 

 

   

 

 

 

Total comprehensive income

                                                                          597        (2     595   

Cash dividends:

                         

Common stock ($.375 per share)

                                                            (180            (180            (180

Preferred stock, series A ($2.61 per share)

                                                            (8            (8            (8

Preferred stock, series B ($1.69 per share)

                                                            (7            (7            (7

Dividend equivalent units related to employee stock-based compensation plans

                                                            (1            (1            (1

Issuance of common shares

           5,252,158               5,252,158               1        47                             48               48   

Tax benefit related to employee stock-based compensation plans

                                              (5                          (5            (5

Stock-based compensation expense

                                              41                             41               41   

Common stock repurchased

                  (48,184,145     (48,184,145                                        (730     (730            (730

Shares repurchased related to employee stock-based compensation plans

                  (3,660,554     (3,660,554                                        (58     (58            (58
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2012

    7,300,000        534,327,480        (72,168,696     462,158,784      $ 565      $ 107      $ 4,219      $ (8   $ 1,165      $ (1,108   $ 4,940      $ 6      $ 4,946   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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)

                                                            1,149               1,149        (1     1,148   

Other comprehensive income, net of tax

                                                     14                      14               14   
                     

 

 

   

 

 

   

 

 

 

Total comprehensive income

                                                                          1,163        (1     1,162   

Cash dividends:

                         

Common stock ($.45 per share)

                                                            (199            (199            (199

Preferred stock, series A ($2.61 per share)

                                                            (9            (9            (9

Preferred stock, series B ($1.51 per share)

                                                            (6            (6            (6

Dividend equivalent units related to employee stock-based compensation plans

                                                            (1            (1            (1

Issuance of common shares

           8,600,008               8,600,008               2        92                             94               94   

Tax benefit related to employee stock-based compensation plans

                                              7                             7               7   

Stock-based compensation expense

                                              37                             37               37   

Common stock repurchased

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

Shares repurchased related to employee stock-based compensation plans

                  (5,616,933     (5,616,933                                        (119     (119            (119
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2013

    7,300,000        544,107,973        (107,843,902     436,264,071      $ 565      $ 109      $ 4,373      $ 8      $ 2,385      $ (1,813   $ 5,627      $ 5      $ 5,632   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

6


Table of Contents

SLM CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in millions)

(Unaudited)

 

     Nine Months  Ended
September 30,
 
       2013         2012    

Operating activities

    

Net income

   $ 1,148      $ 589   

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

    

(Income) loss from discontinued operations, net of tax

     (47     2   

Gains on sales of loans and investments

     (307     (1

Gains on debt repurchases

     (42     (102

Goodwill and acquired intangible asset impairment and amortization expense

     10        13   

Stock-based compensation expense

     37        41   

Unrealized (gains) losses on derivative and hedging activities

     (384     51   

Provisions for loan losses

     649        766   

(Increase) decrease in restricted cash — other

     (3     5   

(Increase) decrease in accrued interest receivable

     (74     204   

Decrease in accrued interest payable

     (61     (55

Decrease in other assets

     545        403   

(Decrease) increase in other liabilities

     (85     31   
  

 

 

   

 

 

 

Cash provided by operating activities — continuing operations

     1,386        1,947   
  

 

 

   

 

 

 

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

     46        (5
  

 

 

   

 

 

 

Total net cash provided by operating activities

     1,432        1,942   
  

 

 

   

 

 

 

Investing activities

    

Student loans acquired and originated

     (3,689     (5,497

Reduction of student loans:

    

Installment payments, claims and other

     9,159        14,167   

Proceeds from sales of student loans

     707        428   

Other investing activities, net

     56        (101

Purchases of available-for-sale securities

     (44     (39

Proceeds from maturities of available-for-sale securities

     28        56   

Purchases of other securities

     (288     (182

Proceeds from maturities of other securities

     289        161   

Decrease (increase) in restricted cash — variable interest entities

     422        (609
  

 

 

   

 

 

 

Total net cash provided by investing activities

     6,640        8,384   
  

 

 

   

 

 

 

Financing activities

    

Borrowings collateralized by loans in trust — issued

     8,542        10,004   

Borrowings collateralized by loans in trust — repaid

     (10,815     (11,565

Asset-backed commercial paper conduits, net

     4,341        140   

ED Conduit Program facility, net

     (9,551     (8,960

Other short-term borrowings issued

            23   

Other short-term borrowings repaid

            (122

Other long-term borrowings issued

     2,712        3,769   

Other long-term borrowings repaid

     (2,343     (2,952

Other financing activities, net

     (782     224   

Retail and other deposits, net

     867        327   

Common stock repurchased

     (400     (730

Common stock dividends paid

     (199     (180

Preferred stock dividends paid

     (15     (15
  

 

 

   

 

 

 

Net cash used in financing activities

     (7,643     (10,037
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

     429        289   

Cash and cash equivalents at beginning of period

     3,900        2,794   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 4,329      $ 3,083   
  

 

 

   

 

 

 

Supplemental disclosures of cash flow information:

    

Cash disbursements made (refunds received) for:

    

Interest

   $ 1,646      $ 1,913   
  

 

 

   

 

 

 

Income taxes paid

   $ 520      $ 416   
  

 

 

   

 

 

 

Income taxes received

   $ (19   $ (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


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SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2013 and for the three and nine months ended

September 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 nine months ended September 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 the 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 nine months ended September 30, 2013.

Reclassifications

Certain reclassifications have been made to the balances as of and for the three and nine months ended September 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 September 30, 2013  

(Dollars in millions)

   FFELP Loans     Private Education
Loans
    Other
Loans
    Total  

Allowance for Loan Losses

        

Beginning balance

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

Total provision

     12        195               207   

Charge-offs(1)

     (15     (205     (3     (223

Reclassification of interest reserve(2)

            5               5   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 130      $ 2,144      $ 32      $ 2,306   
  

 

 

   

 

 

   

 

 

   

 

 

 

Allowance:

        

Ending balance: individually evaluated for impairment

   $      $ 1,091      $ 24      $ 1,115   

Ending balance: collectively evaluated for impairment

   $ 130      $ 1,053      $ 8      $ 1,191   

Loans:

        

Ending balance: individually evaluated for impairment

   $      $ 8,982      $ 49      $ 9,031   

Ending balance: collectively evaluated for impairment

   $ 105,422      $ 31,640      $ 91      $ 137,153   

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

     .08     2.57     7.70  

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

     .06     2.48     7.70  

Allowance as a percentage of the ending total loan balance

     .12     5.28     22.90  

Allowance as a percentage of the ending loans in repayment

     .17     6.77     22.90  

Allowance coverage of charge-offs (annualized)

     2.2        2.6        2.8     

Ending total loans(3)

   $ 105,422      $ 40,622      $ 140     

Average loans in repayment

   $ 78,012      $ 31,630      $ 148     

Ending loans in repayment

   $ 77,618      $ 31,651      $ 140     

 

  (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 September 30, 2012  

(Dollars in millions)

   FFELP Loans     Private Education
Loans
    Other
Loans
    Total  

Allowance for Loan Losses

        

Beginning balance

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

Total provision

     18        252               270   

Charge-offs(1)

     (23     (250     (6     (279

Student loan sales

     (2                   (2

Reclassification of interest reserve(2)

            8               8   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 166      $ 2,196      $ 53      $ 2,415   
  

 

 

   

 

 

   

 

 

   

 

 

 

Allowance:

        

Ending balance: individually evaluated for impairment

   $      $ 1,056      $ 40      $ 1,096   

Ending balance: collectively evaluated for impairment

   $ 166      $ 1,140      $ 13      $ 1,319   

Loans:

        

Ending balance: individually evaluated for impairment

   $      $ 7,099      $ 76      $ 7,175   

Ending balance: collectively evaluated for impairment

   $ 126,441      $ 33,012      $ 146      $ 159,599   

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

     .10     3.23     9.58  

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

     .08     3.11     9.58  

Allowance as a percentage of the ending total loan balance

     .13     5.48     23.92  

Allowance as a percentage of the ending loans in repayment

     .18     7.09     23.92  

Allowance coverage of charge-offs (annualized)

     1.8        2.2        2.4     

Ending total loans(3)

   $ 126,441      $ 40,111      $ 222     

Average loans in repayment

   $ 90,898      $ 30,816      $ 231     

Ending loans in repayment

   $ 90,481      $ 30,972      $ 222     

 

  (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)

 

     Nine Months Ended September 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

     42        607               649   

Charge-offs(1)

     (57     (649     (15     (721

Student loan sales

     (14                   (14

Reclassification of interest reserve(2)

            15               15   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 130      $ 2,144      $ 32      $ 2,306   
  

 

 

   

 

 

   

 

 

   

 

 

 

Allowance:

        

Ending balance: individually evaluated for impairment

   $      $ 1,091      $ 24      $ 1,115   

Ending balance: collectively evaluated for impairment

   $ 130      $ 1,053      $ 8      $ 1,191   

Loans:

        

Ending balance: individually evaluated for impairment

   $      $ 8,982      $ 49      $ 9,031   

Ending balance: collectively evaluated for impairment

   $ 105,422      $ 31,640      $ 91      $ 137,153   

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

     .09     2.74     12.14  

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

     .08     2.65     12.14  

Allowance as a percentage of the ending total loan balance

     .12     5.28     22.90  

Allowance as a percentage of the ending loans in repayment

     .17     6.77     22.90  

Allowance coverage of charge-offs (annualized)

     1.7        2.5        1.6     

Ending total loans(3)

   $ 105,422      $ 40,622      $ 140     

Average loans in repayment

   $ 82,196      $ 31,631      $ 163     

Ending loans in repayment

   $ 77,618      $ 31,651      $ 140     

 

  (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)

 

     Nine Months Ended September 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

     54        712               766   

Charge-offs(1)

     (68     (709     (16     (793

Student loan sales

     (7                   (7

Reclassification of interest reserve(2)

            22               22   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 166      $ 2,196      $ 53      $ 2,415   
  

 

 

   

 

 

   

 

 

   

 

 

 

Allowance:

        

Ending balance: individually evaluated for impairment

   $      $ 1,056      $ 40      $ 1,096   

Ending balance: collectively evaluated for impairment

   $ 166      $ 1,140      $ 13      $ 1,319   

Loans:

        

Ending balance: individually evaluated for impairment

   $      $ 7,099      $ 76      $ 7,175   

Ending balance: collectively evaluated for impairment

   $ 126,441      $ 33,012      $ 146      $ 159,599   

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

     .10     3.10     8.79  

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

     .08     2.97     8.79  

Allowance as a percentage of the ending total loan balance

     .13     5.48     23.92  

Allowance as a percentage of the ending loans in repayment

     .18     7.09     23.92  

Allowance coverage of charge-offs (annualized)

     1.8        2.3        2.5     

Ending total loans(3)

   $ 126,441      $ 40,111      $ 222     

Average loans in repayment

   $ 92,157      $ 30,577      $ 242     

Ending loans in repayment

   $ 90,481      $ 30,972      $ 222     

 

  (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
 
     September 30, 2013     December 31, 2012  

(Dollars in millions)

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

Credit Quality Indicators

          

School Type/FICO Scores:

          

Traditional

   $ 36,353         93   $ 35,347         92

Non-Traditional(1)

     2,947         7        3,207         8   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 39,300         100   $ 38,554         100
  

 

 

    

 

 

   

 

 

    

 

 

 

Cosigners:

          

With cosigner

   $ 26,277         67   $ 24,907         65

Without cosigner

     13,023         33        13,647         35   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 39,300         100   $ 38,554         100
  

 

 

    

 

 

   

 

 

    

 

 

 

Seasoning(2):

          

1-12 payments

   $ 5,855         15   $ 7,371         19

13-24 payments

     5,765         15        6,137         16   

25-36 payments

     6,227         16        6,037         16   

37-48 payments

     4,871         12        4,780         12   

More than 48 payments

     10,041         25        8,325         22   

Not yet in repayment

     6,541         17        5,904         15   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 39,300         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.

 

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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  
     September 30,
2013
    December 31,
2012
 

(Dollars in millions)

   Balance     %     Balance     %  

Loans in-school/grace/deferment(1)

   $ 14,613        $ 17,702     

Loans in forbearance(2)

     13,191          15,902     

Loans in repayment and percentage of each status:

        

    Loans current

     64,144        82.6     75,499        83.2

    Loans delinquent 31-60 days(3)

     3,798        4.9        4,710        5.2   

    Loans delinquent 61-90 days(3)

     2,734        3.5        2,788        3.1   

    Loans delinquent greater than 90 days(3)

     6,942        9.0        7,734        8.5   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total FFELP Loans in repayment

     77,618        100     90,731        100
  

 

 

   

 

 

   

 

 

   

 

 

 

Total FFELP Loans, gross

     105,422          124,335     

FFELP Loan unamortized premium

     1,058          1,436     
  

 

 

     

 

 

   

Total FFELP Loans

     106,480          125,771     

FFELP Loan allowance for losses

     (130       (159  
  

 

 

     

 

 

   

FFELP Loans, net

   $ 106,350        $ 125,612     
  

 

 

     

 

 

   

Percentage of FFELP Loans in repayment

       73.6       73.0
    

 

 

     

 

 

 

Delinquencies as a percentage of FFELP Loans in repayment

       17.4       16.8
    

 

 

     

 

 

 

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

       14.5       14.9
    

 

 

     

 

 

 

 

  (1) 

Loans for customers who may still be attending school or engaging in other permitted educational activities and are not 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
 
     September 30,
2013
    December 31,
2012
 

(Dollars in millions)

   Balance     %     Balance     %  

Loans in-school/grace/deferment(1)

   $ 6,112        $ 5,421     

Loans in forbearance(2)

     971          996     

Loans in repayment and percentage of each status:

        

    Loans current

     27,015        92.3     26,597        91.9

    Loans delinquent 31-60 days(3)

     812        2.8        837        2.9   

    Loans delinquent 61-90 days(3)

     519        1.7        375        1.3   

    Loans delinquent greater than 90 days(3)

     924        3.2        1,121        3.9   
  

 

 

   

 

 

   

 

 

   

 

 

 

    Total traditional loans in repayment

     29,270        100     28,930        100
  

 

 

   

 

 

   

 

 

   

 

 

 

Total traditional loans, gross

     36,353          35,347     

Traditional loans unamortized discount

     (650       (713  
  

 

 

     

 

 

   

Total traditional loans

     35,703          34,634     

Traditional loans receivable for partially charged-off loans

     798          797     

Traditional loans allowance for losses

     (1,611       (1,637  
  

 

 

     

 

 

   

Traditional loans, net

   $ 34,890        $ 33,794     
  

 

 

     

 

 

   

Percentage of traditional loans in repayment

       80.5       81.9
    

 

 

     

 

 

 

Delinquencies as a percentage of traditional loans in repayment

       7.7       8.1
    

 

 

     

 

 

 

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

       3.2       3.3
    

 

 

     

 

 

 

 

  (1) 

Deferment includes customers who have returned to school or are engaged in other permitted educational activities and are not 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


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SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

 

2. Allowance for Loan Losses (Continued)

 

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

(Dollars in millions)

   Balance     %     Balance     %  

Loans in-school/grace/deferment(1)

   $ 429        $ 483     

Loans in forbearance(2)

     137          140     

Loans in repayment and percentage of each status:

        

    Loans current

     1,841        77.3     1,978        76.5

    Loans delinquent 31-60 days(3)

     154        6.5        175        6.8   

    Loans delinquent 61-90 days(3)

     122        5.1        106        4.1   

    Loans delinquent greater than 90 days(3)

     264        11.1        325        12.6   
  

 

 

   

 

 

   

 

 

   

 

 

 

    Total non-traditional loans in repayment

     2,381        100     2,584        100
  

 

 

   

 

 

   

 

 

   

 

 

 

Total non-traditional loans, gross

     2,947          3,207     

Non-traditional loans unamortized discount

     (76       (83  
  

 

 

     

 

 

   

Total non-traditional loans

     2,871          3,124     

Non-traditional loans receivable for partially charged-off loans

     524          550     

Non-traditional loans allowance for losses

     (533       (534  
  

 

 

     

 

 

   

Non-traditional loans, net

   $ 2,862        $ 3,140     
  

 

 

     

 

 

   

Percentage of non-traditional loans in repayment

       80.8       80.6
    

 

 

     

 

 

 

Delinquencies as a percentage of non-traditional loans in repayment

       22.7       23.4
    

 

 

     

 

 

 

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

       5.4       5.1
    

 

 

     

 

 

 

 

  (1) 

Deferment includes customers who have returned to school or are engaged in other permitted educational activities and are not 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.

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. Our allowance for loan losses takes into account these potential recovery uncertainties. In the third quarter of

 

16


Table of Contents

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

 

2. Allowance for Loan Losses (Continued)

 

2013 we increased our allowance related to these potential recovery shortfalls by approximately $112 million. 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 $329 million and $187 million in allowance for Private Education Loan losses at September 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
September 30,
    Nine Months Ended
September 30,
 

(Dollars in millions)

   2013     2012     2013     2012  

Receivable at beginning of period

   $ 1,334      $ 1,277      $ 1,347      $ 1,241   

Expected future recoveries of current period defaults(1)

     68        86        216        237   

Recoveries(2)

     (55     (45     (177     (139

Charge-offs(3)

     (25     (15     (64     (36
  

 

 

   

 

 

   

 

 

   

 

 

 

Receivable at end of period

     1,322        1,303        1,322        1,303   

Allowance for estimated recovery shortfalls(4)

     (329     (187     (329     (187
  

 

 

   

 

 

   

 

 

   

 

 

 

Net receivable at end of period

   $ 993      $ 1,116      $ 993      $ 1,116   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

  (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 September 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 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 September 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 43 percent for each period. The unpaid principal balance of TDR loans that were in an interest rate reduction plan as of September 30, 2013 and December 31, 2012 was $1.5 billion and $1.0 billion, respectively.

 

17


Table of Contents

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

 

2. Allowance for Loan Losses (Continued)

 

At September 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
 

September 30, 2013

        

Private Education Loans — Traditional

   $ 7,251       $ 7,307       $ 830   

Private Education Loans — Non-Traditional

     1,423         1,424         261   
  

 

 

    

 

 

    

 

 

 

Total

   $ 8,674       $ 8,731       $ 1,091   
  

 

 

    

 

 

    

 

 

 

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 September 30,  
     2013      2012  

(Dollars in millions)

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

Private Education Loans — Traditional

   $ 7,246       $ 108       $ 5,481       $ 87   

Private Education Loans — Non-Traditional

     1,477         29         1,274         27   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 8,723       $ 137       $ 6,755       $ 114   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Nine Months Ended September 30,  
     2013      2012  

(Dollars in millions)

   Average
Recorded

Investment
     Interest
Income
Recognized
     Average
Recorded
Investment
     Interest
Income
Recognized
 

Private Education Loans — Traditional

   $ 6,768       $ 304       $ 5,010       $ 241   

Private Education Loans — Non-Traditional

     1,420         83         1,197         78   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 8,188       $ 387       $ 6,207       $ 319   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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  
     September 30,
2013
    December 31, 2012  

(Dollars in millions)

   Balance      %     Balance      %  

Loans in deferment(1)

   $ 789         $ 574      

Loans in forbearance(2)

     768           544      

Loans in repayment and percentage of each status:

          

Loans current

     5,384         75.1     4,619         73.8

Loans delinquent 31-60 days(3)

     555         7.7        478         7.6   

Loans delinquent 61-90 days(3)

     408         5.7        254         4.1   

Loans delinquent greater than 90 days(3)

     827         11.5        908         14.5   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total TDR loans in repayment

     7,174         100     6,259         100
  

 

 

    

 

 

   

 

 

    

 

 

 

Total TDR loans, gross

   $ 8,731         $ 7,377      
  

 

 

      

 

 

    

 

  (1) 

Deferment includes loans for customers who have returned to school and are not currently required to make payments on their loans.

 

  (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 September 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

   $ 651       $ 88       $ 168       $ 573       $ 96       $ 332   

Private Education Loans — Non-Traditional

     94         32         48         101         37         97   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $    745       $ 120       $ 216       $ 674       $ 133       $ 429   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     Nine Months Ended September 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

   $ 1,686       $ 269       $ 547       $ 1,783       $ 244       $ 1,111   

Private Education Loans — Non-Traditional

     259         97         150         346         99         350   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,945       $ 366       $ 697       $ 2,129       $ 343       $ 1,461   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(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
 

September 30, 2013

        

Private Education Loans — Traditional

   $ 940       $ 33       $ 46   

Private Education Loans — Non-Traditional

     97         13         21   
  

 

 

    

 

 

    

 

 

 

Total

   $ 1,037       $ 46       $ 67   
  

 

 

    

 

 

    

 

 

 

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.

 

     September 30, 2013      December 31, 2012  

(Dollars in millions)

   Short
Term
     Long
Term
     Total      Short
Term
     Long
Term
     Total  

Unsecured borrowings:

                 

Senior unsecured debt

   $ 3,201       $ 15,509       $ 18,710       $ 2,319       $ 15,446       $ 17,765   

Bank deposits

     5,732         1,896         7,628         4,226         3,088         7,314   

Other(1)

     806                 806         1,609                 1,609   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total unsecured borrowings

     9,739         17,405         27,144         8,154         18,534         26,688   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Secured borrowings:

                 

FFELP Loan securitizations

             91,690         91,690                 105,525         105,525   

Private Education Loan securitizations

             19,434         19,434                 19,656         19,656   

FFELP Loans — other facilities

     5,794         5,394         11,188         11,651         4,827         16,478   

Private Education Loans — other facilities

             878         878                 1,070         1,070   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total secured borrowings

     5,794         117,396         123,190         11,651         131,078         142,729   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total before hedge accounting adjustments

     15,533         134,801         150,334         19,805         149,612         169,417   

Hedge accounting adjustments

     39         2,143         2,182         51         2,789         2,840   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 15,572       $ 136,944       $ 152,516       $ 19,856       $ 152,401       $ 172,257   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) 

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

 

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:

 

    September 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

  $      $ 91,690      $ 91,690      $ 92,865      $ 3,538      $ 715      $ 97,118   

Private Education Loan securitizations

           19,434        19,434        24,413        337        575        25,325   

FFELP Loans — other facilities

    4,678        3,777        8,455        8,762        151        108        9,021   

Private Education Loans — other facilities

           878        878        1,605        18        31        1,654   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total before hedge accounting adjustments

    4,678        115,779        120,457        127,645        4,044        1,429        133,118   

Hedge accounting adjustments

           1,189        1,189                      951        951   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 4,678      $ 116,968      $ 121,646      $ 127,645      $ 4,044      $ 2,380      $ 134,069   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

    December 31, 2012  
    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

  $      $ 105,525      $ 105,525      $ 107,009      $