XML 34 R19.htm IDEA: XBRL DOCUMENT  v2.3.0.11
Segment Reporting
6 Months Ended
Jun. 30, 2011
Segment Reporting [Abstract]  
Segment Reporting
 
11.   Segment Reporting
 
FFELP Loans Segment
 
Our FFELP Loans segment consists of our $142.6 billion FFELP Loan portfolio as of June 30, 2011 and the underlying debt and capital funding the loans. We no longer originate FFELP Loans; however, we are actively seeking to acquire FFELP Loan portfolios.
 
The following table includes asset information for our FFELP Loans segment.
 
                 
    June 30,
    December 31,
 
    2011     2010  
 
FFELP Loans, net
  $ 142,635     $ 148,649  
Cash and investments(1)
    6,041       5,963  
Other
    4,418       3,911  
                 
Total assets
  $ 153,094     $ 158,523  
                 
 
 
 
(1) Includes restricted cash and investments.
 
 
Consumer Lending Segment
 
We originate, acquire, finance and service Private Education Loans. The portfolio totaled $35.8 billion at June 30, 2011. We also provide savings products, primarily in the form of retail deposits, to help customers save for a college education.
 
The following table includes asset information for our Consumer Lending segment.
 
                 
    June 30,
    December 31,
 
    2011     2010  
 
Private Education Loans, net
  $ 35,753     $ 35,656  
Cash and investments(1)
    2,794       3,372  
Other
    4,506       4,004  
                 
Total assets
  $ 43,053     $ 43,032  
                 
 
 
 
(1) Includes restricted cash and investments.
 
Business Services Segment
 
The Business Services segment generates its revenue from servicing our FFELP Loan portfolio as well as servicing FFELP and other loans for other financial institutions, Guarantors and ED. The segment also performs default aversion work and contingency collections on behalf of Guarantors and ED, Campus Solutions, account asset servicing and transaction processing activities.
 
At June 30, 2011 and December 31, 2010, the Business Services segment had total assets of $799 million and $930 million, respectively.
 
Other Segment
 
The Other segment primarily consists of the financial results related to the repurchase of debt, the corporate liquidity portfolio and all overhead. We also include results from smaller wind-down and discontinued operations within this segment.
 
At June 30, 2011 and December 31, 2010, the Other segment had total assets of $3.4 billion and $2.8 billion, respectively.
 
Measure of Profitability
 
The tables below include the condensed operating results for each of our reportable segments. Management, including the chief operating decision makers, evaluates the Company on certain performance measures that we refer to as “Core Earnings” performance measures for each operating segment. We use “Core Earnings” to manage each business segment because “Core Earnings” reflect adjustments to GAAP financial results for two items, discussed below, that create significant volatility mostly due to timing factors generally beyond the control of management. Accordingly, we believe that “Core Earnings” provide management with a useful basis from which to better evaluate results from ongoing operations against the business plan or against results from prior periods. Consequently, we disclose this information as we believe it provides investors with additional information regarding the operational and performance indicators that are most closely assessed by management. The two items adjusted for in our “Core Earnings” presentations are: (1) our use of derivatives instruments to hedge our economic risks that do not qualify for hedge accounting treatment or do qualify for hedge accounting treatment but result in ineffectiveness and (2) the accounting for goodwill and acquired intangible assets. The tables presented below reflect “Core Earnings” operating measures reviewed and utilized by management to manage the business. Reconciliation of the “Core Earnings” segment totals to our consolidated operating results in accordance with GAAP is also included in the tables below.
 
Our “Core Earnings” performance measures are not defined terms within GAAP and may not be comparable to similarly titled measures reported by other companies. Unlike financial accounting, there is no comprehensive, authoritative guidance for management reporting. The management reporting process measures the performance of the operating segments based on the management structure of the Company and is not necessarily comparable with similar information for any other financial institution. Our operating segments are defined by the products and services they offer or the types of customers they serve, and they reflect the manner in which financial information is currently evaluated by management. Intersegment revenues and expenses are netted within the appropriate financial statement line items consistent with the income statement presentation provided to management. Changes in management structure or allocation methodologies and procedures may result in changes in reported segment financial information.
 
Segment Results and Reconciliations to GAAP
 
                                                                 
    Three Months Ended June 30, 2011  
    FFELP
    Consumer
    Business
                Total “Core
          Total
 
(Dollars in millions)   Loans     Lending     Services     Other     Eliminations(1)     Earnings”     Adjustments(2)     GAAP  
 
Interest income:
                                                               
Student loans
  $ 721     $ 600     $     $     $     $ 1,321     $ 129     $ 1,450  
Other loans
                      5             5             5  
Cash and investments
    1       2       2       2       (2 )     5             5  
                                                                 
Total interest income
    722       602       2       7       (2 )     1,331       129       1,460  
Total interest expense
    357       201             14       (2 )     570       22       592  
                                                                 
Net interest income (loss)
    365       401       2       (7 )           761       107       868  
Less: provisions for loan losses
    23       265             3             291             291  
                                                                 
Net interest income (loss) after provisions for loan losses
    342       136       2       (10 )           470       107       577  
Servicing revenue
    21       15       244             (187 )     93             93  
Contingency revenue
                86                   86             86  
Gains on debt repurchases
                                               
Other income (loss)
                11       3             14       (521 )     (507 )
                                                                 
Total other income (loss)
    21       15       341       3       (187 )     193       (521 )     (328 )
Expenses:
                                                               
Direct operating expenses
    192       73       121             (187 )     199             199  
Overhead expenses
                      69             69             69  
                                                                 
Operating expenses
    192       73       121       69       (187 )     268             268  
Goodwill and acquired intangible assets impairment and amortization
                                        6       6  
Restructuring expenses
          1             1             2             2  
                                                                 
Total expenses
    192       74       121       70       (187 )     270       6       276  
                                                                 
Income (loss) from continuing operations, before income tax expense (benefit)
    171       77       222       (77 )           393       (420 )     (27 )
Income tax expense (benefit)(3)
    63       28       82       (29 )           144       (154 )     (10 )
                                                                 
Net income (loss) from continuing operations
    108       49       140       (48 )           249       (266 )     (17 )
Income from discontinued operations, net of taxes
                      11             11             11  
                                                                 
Net income (loss)
  $ 108     $ 49     $ 140     $ (37 )   $     $ 260     $ (266 )   $ (6 )
                                                                 
 
(1) The eliminations in servicing revenue and direct operating expense represent the elimination of intercompany servicing revenue where the Business Services segment performs the loan servicing function for the FFELP Loans segment.
 
(2) “Core Earnings” adjustments to GAAP:
 
                         
    Three Months Ended June 30, 2011  
          Net Impact of
       
    Net Impact of
    Goodwill and
       
    Derivative
    Acquired
       
(Dollars in millions)   Accounting     Intangibles     Total  
 
Net interest income after provisions for loan losses
  $ 107     $     $ 107  
Total other income (loss)
    (521 )           (521 )
Goodwill and acquired intangible assets impairment and amortization
          6       6  
                         
Total “Core Earnings” adjustments to GAAP
  $ (414 )   $ (6 )     (420 )
                         
Income tax benefit
                    (154 )
                         
Net loss
                  $ (266 )
                         
 
(3) Income taxes are based on a percentage of net income before tax for the individual reportable segment.
 
                                                                 
    Three Months Ended June 30, 2010  
    FFELP
    Consumer
    Business
                Total “Core
          Total
 
(Dollars in millions)   Loans     Lending     Services     Other     Eliminations(1)     Earnings”     Adjustments(2)     GAAP  
 
Interest income:
                                                               
Student loans
  $ 744     $ 575     $     $     $     $ 1,319     $ 132     $ 1,451  
Other loans
                      7             7             7  
Cash and investments
    2       4       4       1       (4 )     7             7  
                                                                 
Total interest income (loss)
    746       579       4       8       (4 )     1,333       132       1,465  
Total interest expense
    382       183             11       (4 )     572       (3 )     569  
                                                                 
Net interest income (loss)
    364       396       4       (3 )           761       135       896  
Less: provisions for loan losses
    29       349             4             382             382  
                                                                 
Net interest income (loss) after provisions for loan losses
    335       47       4       (7 )           379       135       514  
Servicing revenue
    15       21       228             (165 )     99             99  
Contingency revenue
                88                   88             88  
Gains on debt repurchases
                      91             91             91  
Other income
                13                   13       76       89  
                                                                 
Total other income (loss)
    15       21       329       91       (165 )     291       76       367  
Expenses:
                                                               
Direct operating expenses
    187       86       133       2       (165 )     243             243  
Overhead expenses
                      66             66             66  
                                                                 
Operating expenses
    187       86       133       68       (165 )     309             309  
Goodwill and acquired intangible assets impairment and amortization
                                        10       10  
Restructuring expenses
    15       1       2                   18             18  
                                                                 
Total expenses
    202       87       135       68       (165 )     327       10       337  
                                                                 
Income (loss) from continuing operations, before income tax expense (benefit)
    148       (19 )     198       16             343       201       544  
Income tax expense (benefit)(3)
    53       (7 )     71       8             125       74       199  
                                                                 
Net income (loss) from continuing operations
    95       (12 )     127       8             218       127       345  
Loss from discontinued operations, net of taxes
                      (7 )           (7 )           (7 )
                                                                 
Net income (loss)
  $ 95     $ (12 )   $ 127     $ 1     $     $ 211     $ 127     $ 338  
                                                                 
 
(1) The eliminations in servicing revenue and direct operating expense represent the elimination of intercompany servicing revenue where the Business Services segment performs the loan servicing function for the FFELP Loans segment.
 
(2) “Core Earnings” adjustments to GAAP:
 
                         
    Three Months Ended June 30, 2010  
          Net Impact of
       
    Net Impact of
    Goodwill and
       
    Derivative
    Acquired
       
(Dollars in millions)   Accounting     Intangibles     Total  
 
Net interest income after provisions for loan losses
  $ 135     $     $ 135  
Total other income
    76             76  
Goodwill and acquired intangible assets impairment and amortization
          10       10  
                         
Total “Core Earnings” adjustments to GAAP
  $ 211     $ (10 )     201  
                         
Income tax expense
                    74  
                         
Net income
                  $ 127  
                         
 
(3) Income taxes are based on a percentage of net income before tax for the individual reportable segment.
 
                                                                 
    Six Months Ended June 30, 2011  
    FFELP
    Consumer
    Business
                Total “Core
          Total
 
(Dollars in millions)   Loans     Lending     Services     Other     Eliminations(1)     Earnings”     Adjustments(2)     GAAP  
 
Interest income:
                                                               
Student loans
  $ 1,457     $ 1,204     $     $     $     $ 2,661     $ 270     $ 2,931  
Other loans
                      11             11             11  
Cash and investments
    2       5       5       3       (5 )     10             10  
                                                                 
Total interest income (loss)
    1,459       1,209       5       14       (5 )     2,682       270       2,952  
Total interest expense
    726       399             29       (5 )     1,149       37       1,186  
                                                                 
Net interest income (loss)
    733       810       5       (15 )           1,533       233       1,766  
Less: provisions for loan losses
    46       540             8             594             594  
                                                                 
Net interest income (loss) after provisions for loan losses
    687       270       5       (23 )           939       233       1,172  
Servicing revenue
    46       32       489             (376 )     191             191  
Contingency revenue
                164                   164             164  
Gains on debt repurchases
                      64             64       (26 )     38  
Other income
                21       6             27       (754 )     (727 )
                                                                 
Total other income (loss)
    46       32       674       70       (376 )     446       (780 )     (334 )
Expenses:
                                                               
Direct operating expenses
    387       155       249       9       (376 )     424             424  
Overhead expenses
                      148             148             148  
                                                                 
Operating expenses
    387       155       249       157       (376 )     572             572  
Goodwill and acquired intangible assets impairment and amortization
                                        12       12  
Restructuring expenses
    1       2       1       1             5             5  
                                                                 
Total expenses
    388       157       250       158       (376 )     577       12       589  
                                                                 
Income (loss) from continuing operations, before income tax expense (benefit)
    345       145       429       (111 )           808       (559 )     249  
Income tax expense (benefit)(3)
    127       54       158       (41 )           298       (208 )     90  
                                                                 
Net income (loss) from continuing operations
    218       91       271       (70 )           510       (351 )     159  
Income from discontinued operations, net of taxes
                      10             10             10  
                                                                 
Net income (loss)
  $ 218     $ 91     $ 271     $ (60 )   $     $ 520     $ (351 )   $ 169  
                                                                 
 
(1) The eliminations in servicing revenue and direct operating expense represent the elimination of intercompany servicing revenue where the Business Services segment performs the loan servicing function for the FFELP Loans segment.
 
(2) “Core Earnings” adjustments to GAAP:
 
                         
    Six Months Ended June 30, 2011  
          Net Impact of
       
    Net Impact of
    Goodwill and
       
    Derivative
    Acquired
       
(Dollars in millions)   Accounting     Intangibles     Total  
 
Net interest income after provisions for loan losses
  $ 233     $     $ 233  
Total other income (loss)
    (780 )           (780 )
Goodwill and acquired intangible assets impairment and amortization
          12       12  
                         
Total “Core Earnings” adjustments to GAAP
  $ (547 )   $ (12 )     (559 )
                         
Income tax benefit
                    (208 )
                         
Net loss
                  $ (351 )
                         
 
(3) Income taxes are based on a percentage of net income before tax for the individual reportable segment.
 
                                                                 
    Six Months Ended June 30, 2010  
    FFELP
    Consumer
    Business
                Total “Core
          Total
 
(Dollars in millions)   Loans     Lending     Services     Other     Eliminations(1)     Earnings”     Adjustments(2)     GAAP  
 
Interest income:
                                                               
Student loans
  $ 1,386     $ 1,141     $     $     $     $ 2,527     $ 296     $ 2,823  
Other loans
                      16             16             16  
Cash and investments
    4       6       8       1       (8 )     11             11  
                                                                 
Total interest income (loss)
    1,390       1,147       8       17       (8 )     2,554       296       2,850  
Total interest expense
    718       356             21       (8 )     1,087       13       1,100  
                                                                 
Net interest income (loss)
    672       791       8       (4 )           1,467       283       1,750  
Less: provisions for loan losses
    52       674             15             741             741  
                                                                 
Net interest income (loss) after provisions for loan losses
    620       117       8       (19 )           726       283       1,009  
Servicing revenue
    36       41       473             (329 )     221             221  
Contingency revenue
                168                   168             168  
Gains on debt repurchases
                      181             181             181  
Other income
                24       11             35       (5 )     30  
                                                                 
Total other income (loss)
    36       41       665       192       (329 )     605       (5 )     600  
Expenses:
                                                               
Direct operating expenses
    375       166       252       4       (329 )     468             468  
Overhead expenses
                      129             129             129  
                                                                 
Operating expenses
    375       166       252       133       (329 )     597             597  
Goodwill and acquired intangible assets impairment and amortization
                                        19       19  
Restructuring expenses
    33       3       5       2             43             43  
                                                                 
Total expenses
    408       169       257       135       (329 )     640       19       659  
                                                                 
Income (loss) from continuing operations, before income tax expense (benefit)
    248       (11 )     416       38             691       259       950  
Income tax expense (benefit)(3)
    89       (4 )     149       18             252       106       358  
                                                                 
Net income (loss) from continuing operations
    159       (7 )     267       20             439       153       592  
Loss from discontinued operations, net of taxes
                      (14 )           (14 )           (14 )
                                                                 
Net income (loss)
  $ 159     $ (7 )   $ 267     $ 6     $     $ 425     $ 153     $ 578  
                                                                 
 
(1) The eliminations in servicing revenue and direct operating expense represent the elimination of intercompany servicing revenue where the Business Services segment performs the loan servicing function for the FFELP Loans segment.
 
(2) “Core Earnings” adjustments to GAAP:
 
                         
    Six Months Ended June 30, 2010  
          Net Impact of
       
    Net Impact of
    Goodwill and
       
    Derivative
    Acquired
       
(Dollars in millions)   Accounting     Intangibles     Total  
 
Net interest income after provisions for loan losses
  $ 283     $     $ 283  
Total other income (loss)
    (5 )           (5 )
Goodwill and acquired intangible assets impairment and amortization
          19       19  
                         
Total “Core Earnings” adjustments to GAAP
  $ 278     $ (19 )     259  
                         
Income tax benefit
                    106  
                         
Net loss
                  $ 153  
                         
 
(3) Income taxes are based on a percentage of net income before tax for the individual reportable segment.
 
 
Summary of “Core Earnings” Adjustments to GAAP
 
The two adjustments required to reconcile from our “Core Earnings” results to our GAAP results of operations relate to differing treatments for: (1) our use of derivatives instruments to hedge our economic risks that do not qualify for hedge accounting treatment or do qualify for hedge accounting treatment but result in ineffectiveness and (2) the accounting for goodwill and acquired intangible assets. The following table reflects aggregate adjustments associated with these areas for the three and six months ended June 30, 2011 and 2010.
 
                                 
    Three Months Ended
    Six Months Ended
 
    June 30,     June 30,  
(Dollars in millions)   2011     2010     2011     2010  
 
“Core Earnings” adjustments to GAAP:
                               
Net impact of derivative accounting(1)
  $ (414 )   $ 211     $ (547 )   $ 278  
Net impact of acquired intangibles(2)
    (6 )     (10 )     (12 )     (19 )
Net tax effect(3)
    154       (74 )     208       (106 )
                                 
Total “Core Earnings” adjustments to GAAP
  $ (266 )   $ 127     $ (351 )   $ 153  
                                 
 
(1) Derivative accounting: “Core Earnings” exclude periodic unrealized gains and losses that are caused by the mark-to-market derivative valuations on derivatives that do not qualify for hedge accounting treatment under GAAP and periodic unrealized gains and losses that are a result of ineffectiveness recognized related to effective hedges. These unrealized gains and losses occur in our FFELP Loans, Consumer Lending and Other business segments. Under GAAP, for derivatives that are held to maturity, the cumulative net unrealized gain or loss at the time of maturity will equal $0 except for Floor Income Contracts where the cumulative unrealized gain will equal the amount for which we sold the contract. In our “Core Earnings” presentation, we recognized the economic effect of these hedges, which generally results in any net settlement cash paid or received being recognized ratably as an interest expense or revenue over the hedged item’s life.
 
(2) Goodwill and Acquired Intangibles: We exclude goodwill and intangible impairment and amortization of acquired intangibles.
 
(3) Net Tax Effect: Such tax effect is based upon our “Core Earnings” effective tax rate for the year.