Segment Reporting

6 Months Ended

Jun. 30, 2011


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.