XNAS:SLM SLM Corp Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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Table of Contents

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2012

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  þ        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    þ          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  þ        No  ¨

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

 

Class

  

Outstanding at April 30, 2012

Common stock, $.20 par value

   487,747,222 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

     37   

Item 3.

  

Quantitative and Qualitative Disclosures about Market Risk

     72   

Item 4.

  

Controls and Procedures

     77   

PART II. Other Information

  

Item 1.

  

Legal Proceedings

     78   

Item 1A.

  

Risk Factors

     78   

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

     78   

Item 3.

  

Defaults Upon Senior Securities

     78   

Item 4.

  

Mine Safety Disclosures

     78   

Item 5.

  

Other Information

     78   

Item 6.

  

Exhibits

     79   

 

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)

 

     March 31,
2012
    December 31,
2011
 

Assets

    

FFELP Loans (net of allowance for losses of $180 and $187, respectively)

   $ 135,934      $ 138,130   

Private Education Loans (net of allowance for losses of $2,190 and $2,171 respectively)

     36,732        36,290   

Investments

    

Available-for-sale

     64        70   

Other

     935        1,052   
  

 

 

   

 

 

 

Total investments

     999        1,122   

Cash and cash equivalents

     3,043        2,794   

Restricted cash and investments

     5,884        5,873   

Goodwill and acquired intangible assets, net

     471        478   

Other assets

     8,629        8,658   
  

 

 

   

 

 

 

Total assets

   $ 191,692      $ 193,345   
  

 

 

   

 

 

 

Liabilities

    

Short-term borrowings

   $ 27,123      $ 29,573   

Long-term borrowings

     155,588        154,393   

Other liabilities

     3,936        4,128   
  

 

 

   

 

 

 

Total liabilities

     186,647        188,094   
  

 

 

   

 

 

 

Commitments and contingencies

    

Equity

    

Preferred stock, par value $.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 $.20 per share, 1.125 billion shares authorized: 532 million and 529 million shares issued, respectively

     106        106   

Additional paid-in capital

     4,182        4,136   

Accumulated other comprehensive loss (net of tax benefit of $6 and $8, respectively)

     (9     (14

Retained earnings

     814        770   
  

 

 

   

 

 

 

Total SLM Corporation stockholders’ equity before treasury stock

     5,658        5,563   

Less: Common stock held in treasury at cost: 39 million and 20 million shares, respectively

     (620     (320
  

 

 

   

 

 

 

Total SLM Corporation stockholders’ equity

     5,038        5,243   

Noncontrolling interest

     7        8   
  

 

 

   

 

 

 

Total equity

     5,045        5,251   
  

 

 

   

 

 

 

Total liabilities and equity

   $ 191,692      $ 193,345   
  

 

 

   

 

 

 

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

 

     March 31,
2012
     December 31,
2011
 

FFELP Loans

   $ 133,092       $ 135,536   

Private Education Loans

     24,884         24,962   

Restricted cash and investments

     5,715         5,609   

Other assets

     2,640         2,638   

Short-term borrowings

     18,539         21,313   

Long-term borrowings

     134,973         134,533   
  

 

 

    

 

 

 

Net assets of consolidated variable interest entities

   $ 12,819       $ 12,899   
  

 

 

    

 

 

 

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
March  31,
 
         2012             2011      

Interest income:

    

FFELP Loans

   $ 842      $ 877   

Private Education Loans

     625        604   

Other loans

     5        6   

Cash and investments

     5        5   
  

 

 

   

 

 

 

Total interest income

     1,477        1,492   

Total interest expense

     666        594   
  

 

 

   

 

 

 

Net interest income

     811        898   

Less: provisions for loan losses

     253        303   
  

 

 

   

 

 

 

Net interest income after provisions for loan losses

     558        595   
  

 

 

   

 

 

 

Other income (loss):

    

Losses on derivative and hedging activities, net

     (372     (242

Servicing revenue

     97        98   

Contingency revenue

     90        78   

Gains on debt repurchases

     37        38   

Other

     40        22   
  

 

 

   

 

 

 

Total other income (loss)

     (108     (6
  

 

 

   

 

 

 

Expenses:

    

Salaries and benefits

     127        135   

Other operating expenses

     135        168   
  

 

 

   

 

 

 

Total operating expenses

     262        303   

Goodwill and acquired intangible assets impairment and amortization expense

     5        6   

Restructuring expenses

     5        4   
  

 

 

   

 

 

 

Total expenses

     272        313   
  

 

 

   

 

 

 

Income from continuing operations, before income tax expense

     178        276   

Income tax expense

     67        99   
  

 

 

   

 

 

 

Net income from continuing operations

     111        177   

Loss from discontinued operations, net of tax benefit

            (2
  

 

 

   

 

 

 

Net income

     111        175   

Less: net loss attributable to noncontrolling interest

     (1       
  

 

 

   

 

 

 

Net income attributable to SLM Corporation

     112        175   

Preferred stock dividends

     5        4   
  

 

 

   

 

 

 

Net income attributable to SLM Corporation common stock

   $ 107      $ 171   
  

 

 

   

 

 

 

Basic earnings per common share attributable to SLM Corporation:

    

Continuing operations

   $ .21      $ .32   

Discontinued operations

              
  

 

 

   

 

 

 

Total

   $ .21      $ .32   
  

 

 

   

 

 

 

Average common shares outstanding

     503        527   
  

 

 

   

 

 

 

Diluted earnings per common share attributable to SLM Corporation:

    

Continuing operations

   $ .21      $ .32   

Discontinued operations

              
  

 

 

   

 

 

 

Total

   $ .21      $ .32   
  

 

 

   

 

 

 

Average common and common equivalent shares outstanding

     510        532   
  

 

 

   

 

 

 

Dividends per common share attributable to SLM Corporation

   $ .125      $   
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

3


Table of Contents

SLM CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(Unaudited)

 

     Three Months Ended March 31,  
         2012             2011      

Net income

   $ 111      $ 175   

Other comprehensive income (loss):

    

Unrealized gains/(losses) on derivatives:

    

Unrealized hedging gains/(losses) on derivatives

     (2     (3

Reclassification adjustments for derivative losses included in net income

     10        17   

Income tax expense

     (3     (5
  

 

 

   

 

 

 

Other comprehensive income, net of tax

     5        9   
  

 

 

   

 

 

 

Comprehensive income

     116        184   

Less: comprehensive loss attributable to noncontrolling interest

     (1       
  

 

 

   

 

 

 

Total comprehensive income attributable to SLM Corporation

   $ 117      $ 184   
  

 

 

   

 

 

 

 

 

 

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 December 31, 2010

    7,300,000        595,263,474        (68,319,589     526,943,885      $ 565      $ 119      $ 5,940      $ (45   $ 309      $ (1,876   $ 5,012      $      $ 5,012   

Comprehensive income:

                         

Net income

                    175          175          175   

Other comprehensive income, net of tax

                  9            9          9   
                     

 

 

     

 

 

 

Total comprehensive income

                        184          184   

Cash dividends:

                         

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

                    (3       (3       (3

Preferred stock, series B ($.32 per share)

                    (1       (1       (1

Issuance of common shares

      2,304,659          2,304,659          1        22              23          23   

Retirement of common stock in treasury

      (70,074,369     70,074,369            (14     (1,890         1,904                   

Tax benefit related to employee stock-based compensation plans

                (5           (5       (5

Stock-based compensation expense

                25              25          25   

Shares repurchased related to employee stock-based compensation plans

        (1,754,780     (1,754,780               (28     (28       (28
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at March 31, 2011

    7,300,000        527,493,764               527,493,764      $ 565      $ 106      $ 4,092      $ (36   $ 480      $      $ 5,207      $      $ 5,207   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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)

                    112          112        (1     111   

Other comprehensive income, net of tax

                  5            5          5   
                     

 

 

   

 

 

   

 

 

 

Total comprehensive income

                        117        (1     116   

Cash dividends:

                         

Common stock ($.125 per share)

                    (63       (63       (63

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

                    (3       (3       (3

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

                    (2       (2       (2

Issuance of common shares

      3,171,484          3,171,484            27              27          27   

Tax benefit related to employee stock-based compensation plans

                (3           (3       (3

Stock-based compensation expense

                22              22          22   

Common stock repurchased

        (16,703,182     (16,703,182               (268     (268       (268

Shares repurchased related to employee stock-based compensation plans

        (2,056,977     (2,056,977               (32     (32       (32
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at March 31, 2012

    7,300,000        532,246,806        (39,084,156     493,162,650      $ 565      $ 106      $ 4,182      $ (9   $ 814      $ (620   $ 5,038      $ 7      $ 5,045   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

5


Table of Contents

SLM CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in millions)

(Unaudited)

 

     Three Months Ended
March  31,
 
         2012             2011      

Operating activities

    

Net income

   $ 111      $ 175   

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

    

Gains on debt repurchases

     (37     (38

Goodwill and acquired intangible assets impairment and amortization expense

     5        6   

Stock-based compensation expense

     22        25   

Unrealized losses on derivative and hedging activities

     193        57   

Provisions for loan losses

     253        303   

Decrease in restricted cash — other

     29        54   

Decrease (increase) in accrued interest receivable

     5        (104

Increase in accrued interest payable

     39        146   

Decrease in other assets

     73        214   

Decrease in other liabilities

     (138     (79
  

 

 

   

 

 

 

Total adjustments

     444        584   
  

 

 

   

 

 

 

Total net cash provided by operating activities

     555        759   
  

 

 

   

 

 

 

Investing activities

    

Student loans acquired and originated

     (1,658     (1,279

Reduction of student loans:

    

Installment payments, claims and other

     3,391        3,544   

Proceeds from sales of student loans

     135        189   

Other investing activities, net

     121        69   

Purchases of available-for-sale securities

     (14     (71

Proceeds from maturities of available-for-sale securities

     12        53   

Purchases of held-to-maturity and other securities

     (80     (50

Proceeds from maturities of held-to-maturity and other securities

     78        67   

Increase in restricted cash — variable interest entities

     (8     (92
  

 

 

   

 

 

 

Cash provided by investing activities — continuing operations

     1,977        2,430   
  

 

 

   

 

 

 

Cash provided by investing activities — discontinued operations

            28   
  

 

 

   

 

 

 

Total net cash provided by investing activities

     1,977        2,458   
  

 

 

   

 

 

 

Financing activities

    

Borrowings collateralized by loans in trust — issued

     2,115        818   

Borrowings collateralized by loans in trust — repaid

     (3,817     (2,712

Asset-backed commercial paper conduits, net

     1,728        (1,238

ED Conduit Program facility, net

     (3,198     (912

Other short-term borrowings issued

     23          

Other short-term borrowings repaid

     (23       

Other long-term borrowings issued

     1,584        1,967   

Other long-term borrowings repaid

     (454     (1,815

Other financing activities, net

     (94     77   

Retail and other deposits, net

     188        130   

Other

     1        1   

Common stock repurchased

     (268       

Common stock dividends paid

     (63       

Preferred stock dividends paid

     (5     (4
  

 

 

   

 

 

 

Net cash used in financing activities

     (2,283     (3,688
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     249        (471

Cash and cash equivalents at beginning of period

     2,794        4,343   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 3,043      $ 3,872   
  

 

 

   

 

 

 

Cash disbursements made (refunds received) for:

    

Interest

   $ 632      $ 613   
  

 

 

   

 

 

 

Income taxes paid

   $ 46      $ 165   
  

 

 

   

 

 

 

Income taxes received

   $ (5   $ (18
  

 

 

   

 

 

 

Noncash activity:

    

Investing activity — Student loans and other assets acquired

   $ 402      $   
  

 

 

   

 

 

 

Operating activity — Other assets acquired and other liabilities assumed, net

   $ 23      $   
  

 

 

   

 

 

 

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

   $ 425      $   
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

6


Table of Contents

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at March 31, 2012 and for the three months ended

March 31, 2012 and 2011 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 months ended March 31, 2012 are not necessarily indicative of the results for the year ending December 31, 2012 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, 2011 (the “2011 Form 10-K”).

Reclassifications

Certain reclassifications have been made to the balances as of and for the three months ended March 31, 2011 to be consistent with classifications adopted for 2012, and had no effect on net income, total assets, or total liabilities.

Recently Adopted Accounting Standards

Presentation of Comprehensive Income

On January 1, 2012, we adopted Accounting Standards Update No. 2011-05, Comprehensive Income (Topic 220), “Presentation of Comprehensive Income.” The objective of this new guidance is to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. The new guidance requires all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Upon adoption we present comprehensive income and its components in a separate consolidated statement of comprehensive income on a retrospective basis for all periods presented. There was no impact on our results of operations.

Fair Value Measurement and Disclosure Requirements

On January 1, 2012, we adopted ASU No. 2011-04, Fair Value Measurement (Topic 820), “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” These amendments (1) clarify the FASB’s intent about the application of existing fair value measurement and disclosure requirements; and (2) change particular principles or requirements for measuring fair value or for disclosing information about fair value measurements. This new guidance did not have a material impact on our fair value measurements in the first quarter of 2012.

 

7


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) borrowers attending for-profit schools with an original Fair Isaac and Company (“FICO”) score of less than 670 and (ii) borrowers 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 borrower or cosigner FICO score at origination. Traditional loans are defined as all other Private Education Loans that are not classified as non-traditional.

 

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Table of Contents

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

 

2. Allowance for Loan Losses (Continued)

 

Allowance for Loan Losses Metrics

 

 

     Allowance for Loan Losses
Three Months Ended March 31, 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

     18        235               253   

Charge-offs

     (23     (224     (5     (252

Student loan sales

     (2                   (2

Reclassification of interest reserve(1)

            8               8   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending Balance

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

 

 

   

 

 

   

 

 

   

 

 

 

Allowance:

        

Ending balance: individually evaluated for impairment

   $      $ 853      $ 48      $ 901   

Ending balance: collectively evaluated for impairment

   $ 180      $ 1,337      $ 16      $ 1,533   

Ending balance: loans acquired with deteriorated credit quality

   $      $      $      $   

Loans:

        

Ending balance: individually evaluated for impairment

   $      $ 6,030      $ 88      $ 6,118   

Ending balance: collectively evaluated for impairment

   $ 134,490      $ 33,745      $ 160      $ 168,395   

Ending balance: loans acquired with deteriorated credit quality

   $      $      $      $   

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

     .08     2.84     7.17  

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

     .10     2.96     7.17  

Allowance as a percentage of the ending total loan balance

     .13     5.5     26.0  

Allowance as a percentage of the ending loans in repayment

     .20     7.2     26.0  

Allowance coverage of charge-offs (annualized)

     2.0        2.4        3.6     

Ending total loans(2)

   $ 134,490      $ 39,775      $ 248     

Average loans in repayment

   $ 93,150      $ 30,378      $ 252     

Ending loans in repayment

   $ 92,224      $ 30,236      $ 248     

 

  (1) 

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.

 

  (2)

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

 

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SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

 

2. Allowance for Loan Losses (Continued)

 

     Allowance for Loan Losses
Three Months Ended March 31, 2011
 

(Dollars in millions)

   FFELP Loans     Private  Education
Loans
    Other
Loans
    Total  

Allowance for Loan Losses

        

Beginning balance

   $ 189      $ 2,022      $ 72      $ 2,283   

Total provision

     23        275        5        303   

Charge-offs

     (20     (273     (3     (296

Student loan sales

     (2                   (2

Reclassification of interest reserve(1)

            10               10   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending Balance

   $ 190      $ 2,034      $ 74      $ 2,298   
  

 

 

   

 

 

   

 

 

   

 

 

 

Allowance:

        

Ending balance: individually evaluated for impairment

   $      $ 123      $ 61      $ 184   

Ending balance: collectively evaluated for impairment

   $ 190      $ 1,911      $ 13      $ 2,114   

Ending balance: loans acquired with deteriorated credit quality

   $      $      $      $   

Loans:

        

Ending balance: individually evaluated for impairment

   $      $ 474      $ 116      $ 590   

Ending balance: collectively evaluated for impairment

   $ 143,916      $ 38,402      $ 207        182,525   

Ending balance: loans acquired with deteriorated credit quality

   $      $      $      $   

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

     .07     3.75     4.86  

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

     .09     3.94     4.86  

Allowance as a percentage of the ending total loan balance

     .13     5.2     22.8  

Allowance as a percentage of the ending loans in repayment

     .20     7.2     22.8  

Allowance coverage of charge-offs (annualized)

     2.3        1.8        4.6     

Ending total loans(2)

   $ 143,916      $ 38,876      $ 323     

Average loans in repayment

   $ 95,504      $ 28,127      $ 330     

Ending loans in repayment

   $ 94,309      $ 28,120      $ 323     

 

  (1) 

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.

 

  (2)

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

 

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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
 
     March 31, 2012     December 31, 2011  

(Dollars in millions)

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

Credit Quality Indicators

          

School Type/FICO Scores:

          

Traditional

   $ 35,035         91   $ 34,528         91

Non-Traditional(1)

     3,490         9        3,565         9   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 38,525         100   $ 38,093         100
  

 

 

    

 

 

   

 

 

    

 

 

 

Cosigners:

          

With cosigner

   $ 24,154         63   $ 23,507         62

Without cosigner

     14,371         37        14,586         38   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 38,525         100   $ 38,093         100
  

 

 

    

 

 

   

 

 

    

 

 

 

Seasoning(2):

          

1-12 payments

   $ 8,730         23   $ 9,246         24

13-24 payments

     6,666         17        6,837         18   

25-36 payments

     5,737         15        5,677         15   

37-48 payments

     3,894         10        3,778         10   

More than 48 payments

     6,581         17        6,033         16   

Not yet in repayment

     6,917         18        6,522         17   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 38,525         100   $ 38,093         100
  

 

 

    

 

 

   

 

 

    

 

 

 

 

(1) 

Defined as loans to borrowers attending for-profit schools (with a FICO score of less than 670 at origination) and borrowers 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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Table of Contents

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

 

2. Allowance for Loan Losses (Continued)

 

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

 

 

     FFELP Loan Delinquencies  
     March 31,
2012
    December 31,
2011
 

(Dollars in millions)

   Balance     %     Balance     %  

Loans in-school/grace/deferment(1)

   $ 22,788        $ 22,887     

Loans in forbearance(2)

     19,478          19,575     

Loans in repayment and percentage of each status:

        

Loans current

     77,099        83.6     77,093        81.9

Loans delinquent 31-60 days(3)

     5,173        5.6        5,419        5.8   

Loans delinquent 61-90 days(3)

     2,666        2.9        3,438        3.7   

Loans delinquent greater than 90 days(3)

     7,286        7.9        8,231        8.6   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total FFELP Loans in repayment

     92,224        100     94,181        100
  

 

 

   

 

 

   

 

 

   

 

 

 

Total FFELP Loans, gross

     134,490          136,643     

FFELP Loan unamortized premium

     1,624          1,674     
  

 

 

     

 

 

   

Total FFELP Loans

     136,114          138,317     

FFELP Loan allowance for losses

     (180       (187  
  

 

 

     

 

 

   

FFELP Loans, net

   $ 135,934        $ 138,130     
  

 

 

     

 

 

   

Percentage of FFELP Loans in repayment

       68.6       68.9
    

 

 

     

 

 

 

Delinquencies as a percentage of FFELP Loans in repayment

       16.4       18.1
    

 

 

     

 

 

 

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

       17.4       17.2
    

 

 

     

 

 

 

 

(1) 

Loans for borrowers who may still be attending school or engaging in other permitted educational activities and are not yet required to make payments on their loans, e.g., residency periods for medical students or a grace period for bar exam preparation, as well as loans for borrowers who have requested and qualify for other permitted program deferments such as military, unemployment, or economic hardships.

 

(2)

Loans for borrowers 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.

 

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Table of Contents

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

 

2. Allowance for Loan Losses (Continued)

 

     Private Education Traditional Loan
Delinquencies
 
     March 31,
2012
    December 31,
2011
 

(Dollars in millions)

   Balance     %     Balance     %  

Loans in-school/grace/deferment(1)

   $ 6,268        $ 5,866     

Loans in forbearance(2)

     1,179          1,195     

Loans in repayment and percentage of each status:

        

Loans current

     25,469        92.4     25,110        91.4

Loans delinquent 31-60 days(3)

     691        2.5        868        3.2   

Loans delinquent 61-90 days(3)

     424        1.5        393        1.4   

Loans delinquent greater than 90 days(3)

     1,004        3.6        1,096        4.0   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total traditional loans in repayment

     27,588        100     27,467        100
  

 

 

   

 

 

   

 

 

   

 

 

 

Total traditional loans, gross

     35,035          34,528     

Traditional loans unamortized discount

     (776       (792  
  

 

 

     

 

 

   

Total traditional loans

     34,259          33,736     

Traditional loans receivable for partially charged-off loans

     720          705     

Traditional loans allowance for losses

     (1,587       (1,542  
  

 

 

     

 

 

   

Traditional loans, net

   $ 33,392        $ 32,899     
  

 

 

     

 

 

   

Percentage of traditional loans in repayment

       78.7       80.0
    

 

 

     

 

 

 

Delinquencies as a percentage of traditional loans in repayment

       7.7       8.6
    

 

 

     

 

 

 

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

       4.1       4.2
    

 

 

     

 

 

 

Loans in repayment greater than 12 months as a percentage of loans in repayment

       74.9       73.4
    

 

 

     

 

 

 

 

(1) 

Deferment includes borrowers who have returned to school or are engaged in other permitted educational activities and are not yet required to make payments on their loans, e.g., residency periods for medical students or a grace period for bar exam preparation.

 

(2)

Loans for borrowers who have requested extension of grace period generally during employment transition or who have temporarily ceased making full payments due to hardship or other factors, consistent with established loan program servicing policies and procedures.

 

(3)

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

 

13


Table of Contents

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

 

2. Allowance for Loan Losses (Continued)

 

     Private Education Non-Traditional
Loan Delinquencies
 
     March 31,
2012
    December 31,
2011
 

(Dollars in millions)

   Balance     %     Balance     %  

Loans in-school/grace/deferment(1)

   $ 649        $ 656     

Loans in forbearance(2)

     193          191     

Loans in repayment and percentage of each status:

        

Loans current

     2,030        76.7     2,012        74.0

Loans delinquent 31-60 days(3)

     168        6.3        208        7.7   

Loans delinquent 61-90 days(3)

     120        4.5        127        4.7   

Loans delinquent greater than 90 days(3)

     330        12.5        371        13.6   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total non-traditional loans in repayment

     2,648        100     2,718        100
  

 

 

   

 

 

   

 

 

   

 

 

 

Total non-traditional loans, gross

     3,490          3,565     

Non-traditional loans unamortized discount

     (77       (81  
  

 

 

     

 

 

   

Total non-traditional loans

     3,413          3,484     

Non-traditional loans receivable for partially charged-off loans

     530          536     

Non-traditional loans allowance for losses

     (603       (629  
  

 

 

     

 

 

   

Non-traditional loans, net

   $ 3,340        $ 3,391     
  

 

 

     

 

 

   

Percentage of non-traditional loans in repayment

       75.9       76.2
    

 

 

     

 

 

 

Delinquencies as a percentage of non-traditional loans in repayment

       23.3       26.0
    

 

 

     

 

 

 

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

       6.8       6.6
    

 

 

     

 

 

 

Loans in repayment greater than 12 months as a percentage of loans in repayment

       65.5       63.0
    

 

 

     

 

 

 

 

(1) 

Deferment includes borrowers who have returned to school or are engaged in other permitted educational activities and are not yet required to make payments on their loans, e.g., residency periods for medical students or a grace period for bar exam preparation.

 

(2)

Loans for borrowers who have requested extension of grace period generally during employment transition or who have temporarily ceased making full payments due to hardship or other factors, consistent with established loan program servicing policies and procedures.

 

(3)

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

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.

 

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Table of Contents

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

 

2. Allowance for Loan Losses (Continued)

 

The following table summarizes the activity in the receivable for partially charged-off loans.

 

 

     Three Months Ended March 31,  

(Dollars in millions)

       2012             2011      

Receivable at beginning of period

   $ 1,241      $ 1,040   

Expected future recoveries of current period defaults(1)

     69        97   

Recoveries(2)

     (50     (40

Charge-offs(3)

     (10     (7
  

 

 

   

 

 

 

Receivable at end of period

   $ 1,250      $ 1,090   
  

 

 

   

 

 

 

 

  (1) 

Remaining loan balance expected to be collected from contractual loan balances partially charged-off during the period. This is the difference between the defaulted loan balance and the amount of the defaulted loan balance that was charged off.

 

  (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.

Troubled Debt Restructurings

We modify the terms of loans for certain borrowers when we believe such modifications may increase the ability and willingness of a borrower 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 borrowers experiencing financial difficulty, certain Private Education Loans for which we have granted a forbearance of greater than three months, an interest rate reduction or an extended repayment plan are classified as troubled debt restructurings. Forbearance provides borrowers 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. The recorded investment of loans granted a forbearance that was classified as a troubled debt restructuring was $5.3 billion and $4.5 billion at March 31, 2012 and December 31, 2011, respectively. The recorded investment for troubled debt restructurings from loans granted interest rate reductions or extended repayment plans was $0.7 billion and $0.7 billion at March 31, 2012 and December 31, 2011, respectively.

At March 31, 2012 and December 31, 2011, all of our troubled debt restructuring loans had a related allowance recorded. The following table provides the recorded investment, unpaid principal balance and related allowance for our troubled debt restructuring loans.

 

 

     Troubled Debt Restructuring Loans  

(Dollars in millions)

   Recorded
Investment(1)
     Unpaid
Principal
Balance
     Related
Allowance
 

March 31, 2012

        

Private Education Loans — Traditional

   $ 4,792       $ 4,858       $ 617   

Private Education Loans — Non-Traditional

     1,165         1,172         236   
  

 

 

    

 

 

    

 

 

 

Total

   $ 5,957       $ 6,030       $ 853   
  

 

 

    

 

 

    

 

 

 

December 31, 2011

        

Private Education Loans — Traditional

   $ 4,201       $ 4,259       $ 546   

Private Education Loans — Non-Traditional

     1,048         1,054         216   
  

 

 

    

 

 

    

 

 

 

Total

   $ 5,249       $ 5,313       $ 762   
  

 

 

    

 

 

    

 

 

 

 

  (1)

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

 

15


Table of Contents

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

 

2. Allowance for Loan Losses (Continued)

 

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

 

 

     Three Months Ended March 31,  
     2012      2011  

(Dollars in millions)

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

Private Education Loans — Traditional

   $ 4,507       $ 73       $ 276       $ 3   

Private Education Loans — Non-Traditional

     1,110         25         178         3   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 5,617       $ 98       $ 454       $ 6   
  

 

 

    

 

 

    

 

 

    

 

 

 

The following table provides the amount of modified loans that resulted in a troubled debt restructuring, as well as charge-offs occurring in the troubled debt restructuring portfolio. The majority of our loans that are considered troubled debt restructurings involve a temporary forbearance of payments and do not change the contractual interest rate of the loan.

 

 

     Three Months Ended March 31,  
     2012      2011  

(Dollars in millions)

   Modified
Loans(1)
     Charge-
offs(2)
     Modified
Loans(1)
     Charge-
offs(2)
 

Private Education Loans — Traditional

   $ 657       $ 65       $ 30       $ 6   

Private Education Loans — Non-Traditional

     140         29         16         8   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 797       $ 94       $ 46       $ 14   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Represents period ending balance of loans that have been modified during the period.

 

(2)

Represents loans that charge off during the period that are classified as troubled debt restructurings.

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
 

March 31, 2012

        

Private Education Loans — Traditional

   $ 870       $ 34       $ 44   

Private Education Loans — Non-Traditional

     137         16         27   
  

 

 

    

 

 

    

 

 

 

Total

   $ 1,007       $ 50       $ 71   
  

 

 

    

 

 

    

 

 

 

December 31, 2011

        

Private Education Loans — Traditional

   $ 870       $ 36       $ 44   

Private Education Loans — Non-Traditional

     148         18         28   
  

 

 

    

 

 

    

 

 

 

Total

   $ 1,018       $ 54       $ 72   
  

 

 

    

 

 

    

 

 

 

 

16


Table of Contents

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

3. Borrowings

The following table summarizes our borrowings.

 

 

     March 31, 2012      December 31, 2011  

(Dollars in millions)

   Short
Term
     Long
Term
     Total      Short
Term
     Long
Term
     Total  

Unsecured borrowings:

                 

Senior unsecured debt

   $ 2,192       $ 16,182       $ 18,374       $ 1,801       $ 15,199       $ 17,000   

Brokered deposits

     1,455         1,957         3,412         1,733         1,956         3,689   

Retail and other deposits

     2,311                 2,311         2,123                 2,123   

Other(1)

     1,284                 1,284         1,329                 1,329   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total unsecured borrowings

     7,242         18,139         25,381         6,986         17,155         24,141   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Secured borrowings:

                 

FFELP Loan securitizations

             107,211         107,211                 107,905         107,905   

Private Education Loan securitizations

             18,334         18,334                 19,297         19,297   

ED Conduit Program Facility

     18,539                 18,539         21,313                 21,313   

FFELP ABCP Facility

             5,459         5,459                 4,445         4,445   

Private Education Loan ABCP Facility

             2,666         2,666                 1,992         1,992   

Acquisition financing(2)

             856         856                 916         916   

FHLB-DM Facility

     1,250                 1,250         1,210                 1,210   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total secured borrowings

     19,789         134,526         154,315         22,523         134,555         157,078   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total before hedge accounting adjustments

     27,031         152,665         179,696         29,509         151,710         181,219   

Hedge accounting adjustments

     92         2,923         3,015         64         2,683         2,747   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 27,123       $ 155,588       $ 182,711       $ 29,573       $ 154,393       $ 183,966   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

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

 

(2)

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

 

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SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

 

3. Borrowings (Continued)

 

Secured Borrowings

We currently consolidate all of our financing entities that are VIEs as a result of being the entities’ primary beneficiary. As a result, these financing VIEs are accounted for as secured borrowings. We consolidate the following financing VIEs:

 

 

    March 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:

             

ED Conduit Program Facility

  $ 18,539      $      $ 18,539      $ 18,545      $ 712      $ 376      $ 19,633   

FFELP ABCP Facility

           5,459        5,459        5,921        99        101        6,121   

Private Education Loan ABCP Facility

           2,666        2,666        3,522        563        96        4,181   

Securitizations — FFELP Loans

           107,211        107,211        108,626        3,788        483        112,897   

Securitizations — Private Education Loans

           18,334        18,334        21,362        553        459        22,374   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total before hedge accounting adjustments

    18,539        133,670        152,209        157,976        5,715        1,515        165,206   

Hedge accounting adjustments

           1,303        1,303                      1,125        1,125   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 18,539      $ 134,973      $ 153,512      $ 157,976      $ 5,715      $ 2,640      $ 166,331   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    December 31, 2011  
    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:

             

ED Conduit Program Facility

  $ 21,313      $      $ 21,313      $ 21,445      $ 621      $ 442      $ 22,508   

FFELP ABCP Facility

           4,445        4,445        4,834        86        54        4,974   

Private Education Loan ABCP Facility

           1,992        1,992        2,595        401        76        3,072   

Securitizations — FFELP Loans

           107,905        107,905        109,257        3,783        529        113,569   

Securitizations — Private Education Loans

           19,297        19,297        22,367        718        582        23,667   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total before hedge accounting adjustments

    21,313        133,639        154,952        160,498        5,609        1,683        167,790   

Hedge accounting adjustments

           894        894                      955        955   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 21,313      $ 134,533      $ 155,846      $ 160,498      $ 5,609      $ 2,638      $ 168,745   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

 

3. Borrowings (Continued)

 

Securitizations

The following table summarizes the securitization transactions that occurred during the year ended December 31, 2011 and the three months ended March 31, 2012.

 

 

(Dollars in millions)

              

AAA-rated bonds

 

Issue

  

Date Issued

   Total
Issued
    

Weighted Average

Interest Rate

   Weighted
Average
Life
 

FFELP:

           

2011-1

   March 2011    $ 812       1 month LIBOR plus 0.89%      5.5 years   

2011-2

   May 2011    $ 821       1 month LIBOR plus 0.94%      5.5 years   

2011-3

   November 2011    $ 812       1 month LIBOR plus 1.28%      7.8 years   
     

 

 

       

Total bonds issued in 2011

      $ 2,445         
     

 

 

       

Total loan amount securitized in 2011

      $ 2,344         
     

 

 

       

2012-1

   January 2012    $ 765       1 month LIBOR plus 0.96%      4.6 years   

2012-2

   March 2012      824       1 month LIBOR plus 0.75%      4.7 years   
     

 

 

       

Total bonds issued in first-quarter 2012

      $ 1,589         
     

 

 

       

Total loan amount securitized in first-quarter 2012

      $ 1,587         
     

 

 

       

Private Education:

           

2011-A

   April 2011    $ 562       1 month LIBOR plus 1.99%      3.8 years   

2011-B

   June 2011    $ 825       1 month LIBOR plus 1.89%      4.0 years   

2011-C

   November 2011    $ 721       1 month LIBOR plus 2.99%      3.4 years   
     

 

 

       

Total bonds issued in 2011

      $ 2,108         
     

 

 

       

Total loan amount securitized in 2011

      $ 2,674         
     

 

 

       

2012-A

   February 2012    $ 547       1 month LIBOR plus 2.17%      3.0 years   
     

 

 

       

Total bonds issued in first-quarter 2012

      $ 547         
     

 

 

       

Total loan amount securitized in first-quarter 2012

      $ 748         
     

 

 

       

 

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SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

 

3. Borrowings (Continued)

 

Additional, Recent Borrowing-Related Transactions

FFELP ABCP Facility

On January 13, 2012, we amended the FFELP ABCP Facility increasing the amount available and extending the step-down dates on the amount available for borrowing and the final maturity date of the facility. The facility amount is now $7.5 billion, reflecting an increase of $2.5 billion. The scheduled maturity date of the facility is January 9, 2015. The usage fee for the facility remains unchanged at 0.50 percent over the applicable funding rate. The amended facility features two contractual step-down reductions on the amount available for borrowing. The first reduction is on January 11, 2013, to $6.5 billion. The second reduction is on January 10, 2014, to $5.5 billion.

Senior Unsecured Debt

On January 27, 2012, we issued an aggregate of $1.5 billion bonds, comprised of five-year and 10-year unsecured bonds. The 6.00 percent fixed rate five-year bond was issued for $750 million to yield 6.25 percent. The rate on the bond was swapped from a fixed rate to a floating rate equal to an all-in cost of one-month LIBOR plus 5.2 percent. The 7.25 percent fixed rate 10-year bond was issued for $750 million to yield 7.50 percent. The rate on the bond was swapped from a fixed rate to a floating rate equal to an all-in cost of one-month LIBOR plus 5.4 percent. The proceeds of these bonds were designated for general corporate purposes.

 

4. Derivative Financial Instruments

Our risk management strategy and use of and accounting for derivatives have not materially changed from that discussed in our 2011 Form 10-K. Please refer to “Note 7 — Derivative Financial Instruments” in our 2011 Form 10-K for a full discussion.

 

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SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

 

4. Derivative Financial Instruments (Continued)

 

Summary of Derivative Financial Statement Impact

The following tables summarize the fair values and notional amounts of all derivative instruments at March 31, 2012 and December 31, 2011, and their impact on other comprehensive income and earnings for the three months ended March 31, 2012 and 2011.

Impact of Derivatives on Consolidated Balance Sheet

 

 

        Cash Flow     Fair Value     Trading     Total  

(Dollars in millions)

 

Hedged Risk

Exposure

  Mar. 31,
2012
    Dec. 31,
2011
    Mar. 31,
2012
    Dec. 31,
2011
    Mar. 31,
2012
    Dec. 31,
2011
    Mar. 31,
2012
    Dec. 31,
2011
 

Fair Values(1)

                 

Derivative Assets:

                 

Interest rate swaps

  Interest rate   $      $      $ 1,332      $ 1,471      $ 190      $ 262      $ 1,522      $ 1,733   

Cross currency interest rate swaps

  Foreign currency
& interest rate
                  1,384        1,229        97        130        1,481        1,359   

Other(2)

  Interest rate                                        1               1   
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total derivative assets(3)

                    2,716        2,700        287        393        3,003        3,093   

Derivative Liabilities:

                 

Interest rate swaps

  Interest rate     (20     (26     (9            (211     (244     (240     (270

Floor Income Contracts

  Interest rate                                 (2,413     (2,544     (2,413     (2,544

Cross currency interest rate swaps

  Foreign currency
& interest rate
                  (206     (243                   (206     (243

Other(2)

  Interest rate                                 (4            (4       
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total derivative liabilities(3)

      (20     (26     (215     (243     (2,628     (2,788     (2,863     (3,057
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net total derivatives

    $ (20   $ (26   $ 2,501      $ 2,457      $ (2,341   $ (2,395   $ 140      $ 36   
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Fair values reported are exclusive of collateral held and pledged and accrued interest. Assets and liabilities are presented without consideration of master netting agreements. Derivatives are carried on the balance sheet based on net position by counterparty under master netting agreements, and classified in other assets or other liabilities depending on whether in a net positive or negative position.

 

(2)

“Other” includes embedded derivatives bifurcated from securitization debt as well as derivatives related to our Total Return Swap Facility.

 

(3)

The following table reconciles gross positions without the impact of master netting agreements to the balance sheet classification:

 

 

     Other Assets      Other Liabilities  

(Dollar in millions)

   March 31,
2012
     December 31,
2011
     March 31,
2012
     December 31,
2011
 

Gross position

   $ 3,003       $ 3,093       $ (2,863    $ (3,057

Impact of master netting agreements

     (792      (891      792         891   
  

 

 

    

 

 

    

 

 

    

 

 

 

Derivative values with impact of master netting agreements (as carried on balance sheet)

     2,211         2,202         (2,071      (2,166

Cash collateral (held) pledged

     (1,283      (1,326      899         1,018   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net position

   $ 928       $ 876       $ (1,172    $ (1,148
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

 

4. Derivative Financial Instruments (Continued)

 

The above fair values include adjustments for counterparty credit risk for both when we are exposed to the counterparty, net of collateral postings, and when the counterparty is exposed to us, net of collateral postings. The net adjustments decreased the overall net asset positions at March 31, 2012 and December 31, 2011 by $174 million and $190 million, respectively. In addition, the above fair values reflect adjustments for illiquid derivatives as indicated by a wide bid/ask spread in the interest rate indices to which the derivatives are indexed. These adjustments decreased the overall net asset positions at March 31, 2012 and December 31, 2011 by $111 million and $111 million, respectively.

 

 

     Cash Flow      Fair Value      Trading      Total  

(Dollars in billions)

   Mar. 31,
2012
     Dec. 31,
2011
     Mar. 31,
2012
     Dec. 31,
2011
     Mar. 31,
2012
     Dec. 31,
2011
     Mar. 31,
2012
     Dec. 31,
2011
 

Notional Values:

                       

Interest rate swaps

   $ 1.1       $ 1.1       $ 15.3       $ 14.0       $ 73.3       $ 73.6       $ 89.7       $ 88.7   

Floor Income Contracts

                                     57.8         57.8         57.8         57.8   

Cross currency interest rate swaps

                     15.4         15.5         .3         .3         15.7         15.8   

Other(1)

                                     1.5         1.4         1.5         1.4   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total derivatives

   $ 1.1       $ 1.1       $ 30.7       $ 29.5       $ 132.9       $ 133.1       $ 164.7       $ 163.7   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

“Other” includes embedded derivatives bifurcated from securitization debt, as well as derivatives related to our Total Return Swap Facility.

Impact of Derivatives on Consolidated Statements of Income

 

 

     Three Months Ended March 31,  
     Unrealized
Gain

(Loss) on
Derivatives(1)(2)
    Realized
Gain

(Loss)
on
Derivatives(3)
    Unrealized
Gain

(Loss)
on Hedged
Item(1)
    Total Gain
(Loss)
 

(Dollars in millions)

   2012     2011     2012     2011     2012     2011     2012     2011  

Fair Value Hedges:

                

Interest rate swaps

   $ (148   $ (198   $ 113      $ 128      $ 156      $ 205      $ 121      $ 135   

Cross currency interest rate swaps

     192        701        61        76        (453     (878     (200     (101
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total fair value derivatives

     44        503        174        204        (297     (673     (79     34   

Cash Flow Hedges:

                

Interest rate swaps

            (2     (7     (14                   (7     (16
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cash flow derivatives

            (2     (7     (14                   (7     (16

Trading:

                

Interest rate swaps

     (39     (22     35        40                      (4     18   

Floor Income Contracts

     136        151        (215     (226                   (79     (75

Cross currency interest rate swaps

     (33     (17     2        2                      (31     (15

Other

     (4     3        (1     (1                   (5     2   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total trading derivatives

     60        115        (179     (185                   (119     (70
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     104        616        (12     5        (297     (673     (205     (52

Less: realized gains (losses) recorded in interest expense

                   167        190                      167        190   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gains (losses) on derivative and hedging activities, net

   $ 104      $ 616      $ (179   $ (185   $ (297   $ (673   $ (372   $ (242
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Recorded in “Gains (losses) on derivative and hedging activities, net” in the consolidated statements of income.

 

(2)

Represents ineffectiveness related to cash flow hedges.

 

(3)

For fair value and cash flow hedges, recorded in interest expense. For trading derivatives, recorded in “Gains (losses) on derivative and hedging activities, net.”

 

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SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

 

4. Derivative Financial Instruments (Continued)

 

Impact of Derivatives on Consolidated Statements of Changes in Stockholders’ Equity (net of tax)

 

 

     Three Months
Ended
March 31,
 

(Dollars in millions)

   2012     2011  

Total gains (losses) on cash flow hedges

   $ (1   $ (2

Realized (gains) losses reclassified to interest expense(1)(2)(3)

     6        10   

Hedge ineffectiveness reclassified to earnings(1)(4)

            1   
  

 

 

   

 

 

 

Total change in stockholders’ equity for unrealized gains (losses) on derivatives

   $ 5      $ 9   
  

 

 

   

 

 

 

 

  (1)

Amounts included in “Realized gain (loss) on derivatives” in the “Impact of Derivatives on Consolidated Statements of Income” table above.

 

  (2)

Includes net settlement income/expense.

 

  (3)

We expect to reclassify $50 thousand of after-tax net losses from accumulated other comprehensive income to earnings during the next 12 months related to amortization of cash flow hedge that were hedging debt instruments that are outstanding as of the reporting date.

 

  (4)

Recorded in “Gains (losses) derivatives and hedging activities, net” in the consolidated statements of income.

Collateral

Collateral held and pledged related to derivative exposures between us and our derivative counterparties are detailed in the following table:

 

 

(Dollars in millions)

   March 31,
2012
     December 31,
2011
 

Collateral held:

     

Cash (obligation to return cash collateral is recorded in short-term borrowings)(1)

   $ 1,283       $ 1,326   

Securities at fair value — on-balance sheet securitization derivatives (not recorded in financial statements)(2)

     823         841   
  

 

 

    

 

 

 

Total collateral held

   $ 2,106       $ 2,167   
  

 

 

    

 

 

 

Derivative asset at fair value, including accrued interest

   $ 2,632       $ 2,607   
  

 

 

    

 

 

 

Collateral pledged to others:

     

Cash (right to receive return of cash collateral is recorded in investments)

   $ 899       $ 1,018   
  

 

 

    

 

 

 

Total collateral pledged

   $ 899       $ 1,018   
  

 

 

    

 

 

 

Derivative liability at fair value including accrued interest and premium receivable

   $ 1,063       $ 1,223   
  

 

 

    

 

 

 

 

(1)

At March 31, 2012 and December 31, 2011, $38 million and $26 million, respectively, were held in restricted cash accounts.

 

(2)

The trusts do not have the ability to sell or re-pledge securities they hold as collateral.

Our corporate derivatives contain credit contingent features. At our current unsecured credit rating, we have fully collateralized our corporate derivative liability position (including accrued interest and net of premiums receivable) of $882 million with our counterparties. Further downgrades would not result in any additional

 

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SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

 

4. Derivative Financial Instruments (Continued)

 

collateral requirements, except to increase the frequency of collateral calls. Two counterparties have the right to terminate the contracts with further downgrades. We currently have a liability position with these derivative counterparties (including accrued interest and net of premiums receivable) of $269 million and have posted $262 million of collateral to these counterparties. If the credit contingent feature was triggered for these two counterparties and the counterparties exercised their right to terminate, we would be required to deliver additional assets totaling $7 million to settle the contracts. Trust related derivatives do not contain credit contingent features related to our or the trusts’ credit ratings.

 

5. Other Assets

The following table provides detail on our other assets.

 

 

     March 31, 2012     December 31, 2011  

(Dollars in millions)

   Ending
Balance
     % of
Balance
    Ending
Balance
     % of
Balance
 

Accrued interest receivable

   $ 2,503         29   $ 2,484         29

Derivatives at fair value

     2,211         26        2,202         25   

Income tax asset, net current and deferred

     1,397         16        1,427         17   

Accounts receivable

     1,402         16        1,392         16   

Benefit and insurance-related investments

     467         5        466         5   

Fixed assets, net

     208         2        214         3   

Other loans, net

     183         2        193         2   

Other

     258         4        280         3   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 8,629         100   $ 8,658         100
  

 

 

    

 

 

   

 

 

    

 

 

 

The “Derivatives at fair value” line in the above table represents the fair value of our derivatives in a gain position by counterparty, exclusive of accrued interest and collateral. At March 31, 2012 and December 31, 2011, these balances included $2.5 billion and $2.5 billion, respectively, of cross-currency interest rate swaps and interest rate swaps designated as fair value hedges that were offset by an increase in interest-bearing liabilities related to the hedged debt. As of March 31, 2012 and December 31, 2011, the cumulative mark-to-market adjustment to the hedged debt was $(3.0) billion and $(2.7) billion, respectively.

 

6. Stockholders’ Equity

The following table summarizes our common share repurchases and issuances.

 

 

     Three Months Ended
March 31,
 
     2012      2011  

Common shares repurchased(1)

     16,703,182           

Average purchase price per share(2)

   $ 16.04       $   

Shares repurchased related to employee stock-based compensation plans(3)

     2,056,977         1,754,780   

Average purchase price per share

   $ 15.33       $ 15.62   

Common shares issued(4)

     3,171,484         2,304,659   

 

  (1)

Common shares purchased under our January 2012 $500 million share repurchase program, of which $232 million remains available as of March 31, 2012.

 

  (2)

Average purchase price per share includes purchase commission costs.

 

  (3)

Comprises shares withheld from stock option exercises and vesting of restricted stock for employees’ tax withholding obligations and shares tendered by employees to satisfy option exercise costs.

 

  (4) 

Common shares issued under our various compensation and benefit plans.

 

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SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

 

6. Stockholders’ Equity (Continued)

 

The closing price of our common stock on March 30, 2012 was $15.76.

Dividend and Share Repurchase Program

On January 26, 2012, we increased our regular quarterly common stock dividend to $.125 per share, up from $.10 per share in the prior quarter. We paid our quarterly dividend on March 16, 2012. During the first quarter of 2012, we repurchased 16.7 million shares of common stock at an aggregate price of $268 million. The shares were repurchased on the open market under our January 2012 share repurchase program that authorizes up to $500 million of share repurchases.

 

7. Earnings per Common Share

Basic earnings per common share (“EPS”) are calculated using the weighted average number of shares of common stock outstanding during each period. A reconciliation of the numerators and denominators of the basic and diluted EPS calculations follows.

 

 

     Three Months Ended
March  31,
 

(In millions, except per share data)

     2012          2011    

Numerator:

     

Net income attributable to SLM Corporation

   $ 112       $ 175   

Preferred stock dividends

     5         4   
  

 

 

    

 

 

 

Net income attributable to SLM Corporation common stock

   $ 107       $ 171   
  

 

 

    

 

 

 

Denominator:

     

Weighted average shares used to compute basic EPS

     503         527   

Effect of dilutive securities:

     

Dilutive effect of stock options, non-vested deferred compensation and restricted stock, restricted stock units and Employee Stock Purchase Plan (“ESPP”)(1)

     7         5   
  

 

 

    

 

 

 

Dilutive potential common shares(2)

     7         5   
  

 

 

    

 

 

 

Weighted average shares used to compute diluted EPS

     510         532   
  

 

 

    

 

 

 

Basic earnings per common share attributable to SLM Corporation:

     

Continuing operations

   $ .21       $ .32   

Discontinued operations

     —           —     
  

 

 

    

 

 

 

Total

   $ .21       $ .32   
  

 

 

    

 

 

 

Diluted earnings per common share attributable to SLM Corporation:

     

Continuing operations

   $ .21       $ .32   

Discontinued operations

     —           —     
  

 

 

    

 

 

 

Total

   $ .21       $ .32   
  

 

 

    

 

 

 

 

(1) 

Includes the potential dilutive effect of additional common shares that are issuable upon exercise of outstanding stock options, non-vested deferred compensation and restricted stock, restricted stock units, and the outstanding commitment to issue shares under the ESPP, determined by the treasury stock method.

 

(2) 

For the three months ended March 31, 2012 and 2011, stock options covering approximately 12 million and 16 million shares, respectively, and restricted stock/restricted stock units of 3 million and 2 million shares, respectively, were outstanding but not included in the computation of diluted earnings per share because they were anti-dilutive.

 

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SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

8. Restructuring Activities

The following table summarizes the restructuring expenses incurred during the three months ended March 31, 2012 and 2011 and cumulative restructuring expenses incurred through March 31, 2012 associated with our restructuring plans.

 

 

     Three Months Ended
March  31,
     Cumulative
Expense(1) as of
March 31,
2012
 

(Dollars in millions)

   2012      2011     

Severance costs

   $ 5       $ 2       $ 174   

Lease and other contract termination costs

                     11   

Exit and other costs

             2         19   
  

 

 

    

 

 

    

 

 

 

Total restructuring costs from continuing operations(1)

     5         4         204   

Total restructuring costs from discontinued operations

                     29   
  

 

 

    

 

 

    

 

 

 

Total

   $ 5       $ 4       $ 233   
  

 

 

    

 

 

    

 

 

 

 

(1) 

Aggregate restructuring expenses from continuing operations incurred across our reportable segments are disclosed in “Note 11 — Segment Reporting.”

Since the fourth quarter of 2007 through March 31, 2012, cumulative severance costs were incurred in conjunction with aggregate completed and planned position eliminations of approximately 5,500 positions. Position eliminations were across all of our reportable segments, ranging from senior executives to servicing center personnel. Lease and other contract termination costs and exit and other costs incurred during 2011 related primarily to terminated or abandoned facility leases and consulting costs incurred in conjunction with various cost reduction and exit strategies.

The following table summarizes changes in the restructuring liability balance, which is included in other liabilities in the accompanying consolidated balance sheet.

 

 

(Dollars in millions)

   Severance
Costs
    Lease and
Other
Contract
Termination
Costs
    Exit and
Other  Costs
    Total  

Balance at December 31, 2010

   $ 48      $ 4      $ 1      $ 53   

Net accruals from continuing operations

     6               3        9   

Net accruals from discontinued operations