XNAS:SLM SLM Corp Quarterly Report 10-Q Filing - 6/30/2012

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10-Q
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 June 30, 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 June 30, 2012

Common stock, $.20 par value

  469,402,199 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

     43   

Item 3.

  

Quantitative and Qualitative Disclosures about Market Risk

     91   

Item 4.

  

Controls and Procedures

     96   

PART II. Other Information

  

Item 1.

  

Legal Proceedings

     97   

Item 1A.

  

Risk Factors

     97   

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

     98   

Item 3.

  

Defaults Upon Senior Securities

     98   

Item 4.

  

Mine Safety Disclosures

     98   

Item 5.

  

Other Information

     98   

Item 6.

  

Exhibits

     99   

 

1


Table of Contents

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

SLM CORPORATION

CONSOLIDATED BALANCE SHEETS

(In millions, except share and per share amounts)

(Unaudited)

 

     June 30,
2012
    December 31,
2011
 

Assets

    

FFELP Loans (net of allowance for losses of $173 and $187, respectively)

   $ 132,833      $ 138,130   

Private Education Loans (net of allowance for losses of $2,186 and $2,171, respectively)

     36,454        36,290   

Investments

    

Available-for-sale

     59        70   

Other

     1,044        1,052   
  

 

 

   

 

 

 

Total investments

     1,103        1,122   

Cash and cash equivalents

     3,020        2,794   

Restricted cash and investments

     6,717        5,873   

Goodwill and acquired intangible assets, net

     467        478   

Other assets

     8,485        8,658   
  

 

 

   

 

 

 

Total assets

   $ 189,079      $ 193,345   
  

 

 

   

 

 

 

Liabilities

    

Short-term borrowings

   $ 24,493      $ 29,573   

Long-term borrowings

     155,476        154,393   

Other liabilities

     4,172        4,128   
  

 

 

   

 

 

 

Total liabilities

     184,141        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: 533 million and 529 million shares issued, respectively

     107        106   

Additional paid-in capital

     4,196        4,136   

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

     (10     (14

Retained earnings

     1,040        770   
  

 

 

   

 

 

 

Total SLM Corporation stockholders’ equity before treasury stock

     5,898        5,563   

Less: Common stock held in treasury at cost: 63 million and 20 million shares, respectively

     (967     (320
  

 

 

   

 

 

 

Total SLM Corporation stockholders’ equity

     4,931        5,243   

Noncontrolling interest

     7        8   
  

 

 

   

 

 

 

Total equity

     4,938        5,251   
  

 

 

   

 

 

 

Total liabilities and equity

   $ 189,079      $ 193,345   
  

 

 

   

 

 

 

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

 

     June 30,
2012
     December 31,
2011
 

FFELP Loans

   $ 129,314       $ 135,536   

Private Education Loans

     25,895         24,962   

Restricted cash and investments

     6,580         5,609   

Other assets

     2,085         2,638   

Short-term borrowings

     15,903         21,313   

Long-term borrowings

     135,154         134,533   
  

 

 

    

 

 

 

Net assets of consolidated variable interest entities

   $ 12,817       $ 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 June 30,     Six Months Ended June 30,  
             2012                     2011                     2012                     2011          

Interest income:

        

FFELP Loans

   $ 777      $ 850      $ 1,619      $ 1,727   

Private Education Loans

     616        600        1,241        1,204   

Other loans

     4        5        9        11   

Cash and investments

     6        5        10        10   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest income

     1,403        1,460        2,879        2,952   

Total interest expense

     657        592        1,323        1,186   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income

     746        868        1,556        1,766   

Less: provisions for loan losses

     243        291        496        594   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income after provisions for loan losses

     503        577        1,060        1,172   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other income (loss):

        

Gains (losses) on derivative and hedging activities, net

     6        (510     (366     (752

Servicing revenue

     92        93        189        191   

Contingency revenue

     87        86        176        164   

Gains on debt repurchases

     20        —          58        38   

Other

     (2     3        38        25   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (loss)

     203        (328     95        (334
  

 

 

   

 

 

   

 

 

   

 

 

 

Expenses:

        

Salaries and benefits

     120        125        247        261   

Other operating expenses

     119        143        254        311   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     239        268        501        572   

Goodwill and acquired intangible assets impairment and amortization expense

     5        6        9        12   

Restructuring expenses

     3        2        8        5   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     247        276        518        589   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations, before income tax expense (benefit)

     459        (27     637        249   

Income tax expense (benefit)

     168        (10     235        90   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) from continuing operations

     291        (17     402        159   

Income from discontinued operations, net of tax expense

     —          11        —          10   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     291        (6     402        169   

Less: net loss attributable to noncontrolling interest

     (1     —          (1     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to SLM Corporation

     292        (6     403        169   

Preferred stock dividends

     5        4        10        8   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to SLM Corporation common stock

   $ 287      $ (10   $ 393      $ 161   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

        

Continuing operations

   $ .59      $ (.04   $ .80      $ .29   

Discontinued operations

     —          .02        —          .02   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ .59      $ (.02   $ .80      $ .31   
  

 

 

   

 

 

   

 

 

   

 

 

 

Average common shares outstanding

     482        524        493        525   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

        

Continuing operations

   $ .59      $ (.04   $ .79      $ .28   

Discontinued operations

     —          .02        —          .02   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ .59      $ (.02   $ .79      $ .30   
  

 

 

   

 

 

   

 

 

   

 

 

 

Average common and common equivalent shares outstanding

     488        524        499        531   
  

 

 

   

 

 

   

 

 

   

 

 

 

Dividends per common share attributable to SLM Corporation

   $ .125      $ .10      $ .25      $ .10   
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

3


Table of Contents

SLM CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(Unaudited)

 

     Three Months Ended June 30,     Six Months Ended June 30,  
             2012                     2011                     2012                     2011          

Net income (loss)

   $ 291      $ (6   $ 402      $ 169   

Other comprehensive income (loss):

        

Unrealized gains/(losses) on derivatives:

        

Unrealized hedging losses on derivatives

     (10     (5     (11     (8

Reclassification adjustments for derivative losses included in net income

     8        13        17        30   

Unrealized gains on investments

     —          2        —          2   

Income tax benefit (expense)

     1        (4     (2     (9
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income, net of tax

     (1     6        4        15   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

     290        —          406        184   

Less: comprehensive loss attributable to noncontrolling interest

     (1     —          (1     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income attributable to SLM Corporation

   $ 291      $ —        $ 407      $ 184   
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

4


Table of Contents

SLM CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In millions, except share and per share amounts)

(Unaudited)

 

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

Balance at March 31, 2011

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

Comprehensive income:

                         

Net loss

    —          —          —          —          —          —          —          —          (6     —          (6     —          (6

Other comprehensive income, net of tax

    —          —          —          —          —          —          —          6        —          —          6        —          6   
                     

 

 

   

 

 

   

 

 

 

Total comprehensive income

    —          —          —          —          —          —          —          —          —          —          —          —          —     

Cash dividends:

          —          —          —          —          —          —          —           

Common stock ($.10 per share)

    —          —          —          —          —          —          —          —          (52     —          (52     —          (52

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

    —          —          —          —          —          —          —          —          (3     —          (3     —          (3

Preferred stock, series B ($.26 per share)

    —          —          —          —          —          —          —          —          (1     —          (1     —          (1

Issuance of common shares

    —          1,129,399        —          1,129,399        —          —          12        —          —          —          12        —          12   

Tax benefit related to employee stock-based compensation plans

    —          —          —          —          —          —          (2     —          —          —          (2     —          (2

Stock-based compensation expense

    —          —          —          —          —          —          12        —          —          —          12        —          12   

Common stock repurchased

    —          —          (9,593,603     (9,593,603     —          —          —          —          —          (156     (156     —          (156

Shares repurchased related to employee stock-based compensation plans

    —          —          (880,731     (880,731     —          —          —          —          —          (14     (14     —          (14

Acquisition of noncontrolling interest

    —          —          —          —          —          —          —          —          —          —          —          9        9   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2011

    7,300,000        528,623,163        (10,474,334     518,148,829      $ 565      $ 106      $ 4,114      $ (30   $ 418      $ (170   $ 5,003      $ 9      $ 5,012   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at March 31, 2012

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

Comprehensive income:

                         

Net income (loss)

    —          —          —          —          —          —          —          —          292        —          292        (1     291   

Other comprehensive income, net of tax

    —          —          —          —          —          —          —          (1     —          —          (1     —          (1
                     

 

 

   

 

 

   

 

 

 

Total comprehensive income

    —          —          —          —          —          —          —          —          —          —          291        (1     290   

Cash dividends:

                         

Common stock ($.125 per share)

    —          —          —          —          —          —          —          —          (61     —          (61     —          (61

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

    —          —          —          —          —          —          —          —          (3     —          (3     —          (3

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

    —          —          —          —          —          —          —          —          (2     —          (2     —          (2

Issuance of common shares

    —          426,168        —          426,168        —          1        4        —          —          —          5        —          5   

Stock-based compensation expense

    —          —          —          —          —          —          10        —          —          —          10        —          10   

Common stock repurchased

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

Shares repurchased related to employee stock-based compensation plans

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2012

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

See accompanying notes to consolidated financial statements.

 

5


Table of Contents

SLM CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(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

    —          —          —          —          —          —          —          —          169        —          169        —          169   

Other comprehensive income, net of tax

    —          —          —          —          —          —          —          15        —          —          15        —          15   
                     

 

 

   

 

 

   

 

 

 

Total comprehensive income

    —          —          —          —          —          —          —          —          —          —          184        —          184   

Cash dividends:

                         

Common stock ($.10 per share)

    —          —          —          —          —          —          —          —          (52     —          (52     —          (52

Preferred stock, series A ($1.74 per share)

    —          —          —          —          —          —          —          —          (6     —          (6     —          (6

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

    —          —          —          —          —          —          —          —          (2     —          (2     —          (2

Issuance of common shares

    —          3,434,058        —          3,434,058        —          1        34        —          —          —          35        —          35   

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

    —          —          —          —          —          —          (7     —          —          —          (7     —          (7

Stock-based compensation expense

    —          —          —          —          —          —          37        —          —          —          37        —          37   

Common stock repurchased

    —          —          (9,593,603     (9,593,603     —          —          —          —          —          (156     (156     —          (156

Shares repurchased related to employee stock-based compensation plans

    —          —          (2,635,511     (2,635,511     —          —          —          —          —          (42     (42     —          (42

Acquisition of noncontrolling interest

    —          —          —          —          —          —          —          —          —          —          —          9        9   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2011

    7,300,000        528,623,163        (10,474,334     518,148,829      $ 565      $ 106      $ 4,114      $ (30   $ 418      $ (170   $ 5,003      $ 9      $ 5,012   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2011

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

Comprehensive income:

                         

Net income (loss)

    —          —          —          —          —          —          —          —          403        —          403        (1     402   

Other comprehensive income, net of tax

    —          —          —          —          —          —          —          4        —          —          4        —          4   
                     

 

 

   

 

 

   

 

 

 

Total comprehensive income

    —          —          —          —          —          —          —          —          —          —          407        (1     406   

Cash dividends:

                         

Common stock ($.25 per share)

    —          —          —          —          —          —          —          —          (123     —          (123     —          (123

Preferred stock, series A ($1.74 per share)

    —          —          —          —          —          —          —          —          (6     —          (6     —          (6

Preferred stock, series B ($1.13 per share)

    —          —          —          —          —          —          —          —          (4     —          (4     —          (4

Issuance of common shares

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

Tax benefit related to employee stock-based compensation plans

    —          —          —          —          —          —          (3     —          —          —          (3     —          (3

Stock-based compensation expense

    —          —          —          —          —          —          32        —          —          —          32        —          32   

Common stock repurchased

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

Shares repurchased related to employee stock-based compensation plans

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2012

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

6


Table of Contents

SLM CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

 

     Six Months Ended June 30,  
         2012             2011      

Operating activities

    

Net income

   $ 402      $ 169   

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

    

Gains on debt repurchases

     (58     (38

Goodwill and acquired intangible assets impairment and amortization expense

     9        12   

Stock-based compensation expense

     32        37   

Unrealized (gains) losses on derivative and hedging activities

     (1     396   

Provisions for loan losses

     496        594   

Decrease in restricted cash — other

     34        53   

Decrease in accrued interest receivable

     104        93   

Increase in accrued interest payable

     29        70   

(Increase) decrease in other assets

     (81     206   

Increase (decrease) in other liabilities

     59        (225
  

 

 

   

 

 

 

Total adjustments

     623        1,198   
  

 

 

   

 

 

 

Total net cash provided by operating activities

     1,025        1,367   
  

 

 

   

 

 

 

Investing activities

    

Student loans acquired and originated

     (3,826     (1,818

Reduction of student loans:

    

Installment payments, claims and other

     8,479        6,707   

Proceeds from sales of student loans

     284        381   

Other investing activities, net

     —          (172

Purchases of available-for-sale securities

     (22     (110

Proceeds from maturities of available-for-sale securities

     44        133   

Purchases of held-to-maturity and other securities

     (148     (131

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

     128        128   

(Increase) decrease in restricted cash – variable interest entities

     (881     137   
  

 

 

   

 

 

 

Cash provided by investing activities — continuing operations

     4,058        5,255   
  

 

 

   

 

 

 

Cash provided by investing activities — discontinued operations

     —          51   
  

 

 

   

 

 

 

Total net cash provided by investing activities

     4,058        5,306   
  

 

 

   

 

 

 

Financing activities

    

Borrowings collateralized by loans in trust — issued

     6,894        3,038   

Borrowings collateralized by loans in trust — repaid

     (6,849     (5,725

Asset-backed commercial paper conduits, net

     1,233        (445

ED Conduit Program facility, net

     (5,835     (1,729

Other short-term borrowings issued

     23        —     

Other short-term borrowings repaid

     (64     —     

Other long-term borrowings issued

     1,927        1,967   

Other long-term borrowings repaid

     (1,782     (4,133

Other financing activities, net

     94        255   

Retail and other deposits, net

     244        117   

Common stock repurchased

     (609     (156

Common stock dividends paid

     (123     (52

Preferred stock dividends paid

     (10     (8
  

 

 

   

 

 

 

Net cash used in financing activities

     (4,857     (6,871
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     226        (198

Cash and cash equivalents at beginning of period

     2,794        4,343   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 3,020      $ 4,145   
  

 

 

   

 

 

 

Cash disbursements made (refunds received) for:

    

Interest

   $ 1,276      $ 1,225   
  

 

 

   

 

 

 

Income taxes paid

   $ 310      $ 364   
  

 

 

   

 

 

 

Income taxes received

   $ (5   $ (22
  

 

 

   

 

 

 

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.

 

7


Table of Contents

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2012 and for the three and six months ended

June 30, 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 and six months ended June 30, 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 and six months ended June 30, 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 three and six months ended June 30, 2012.

 

8


Table of Contents

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

2.    Allowance for Loan Losses

Our provisions for loan losses represent the periodic expense of maintaining an allowance sufficient to absorb incurred probable losses, net of expected recoveries, in the held-for-investment loan portfolios. The evaluation of the provisions for loan losses is inherently subjective as it requires material estimates that may be susceptible to significant changes. We believe that the allowance for loan losses is appropriate to cover probable losses incurred in the loan portfolios. We segregate our Private Education Loan portfolio into two classes of loans — traditional and non-traditional. Non-traditional loans are loans to (i) 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.

 

9


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 June 30, 2012  

(Dollars in millions)

   FFELP Loans     Private  Education
Loans
    Other
Loans
    Total  

Beginning balance

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

Total provision

     18        225        —          243   

Charge-offs(1)

     (23     (235     (5     (263

Student loan sales

     (2     —          —          (2

Reclassification of interest reserve(2)

     —          6        —          6   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

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

 

 

   

 

 

   

 

 

   

 

 

 

Allowance:

        

Ending balance: individually evaluated for impairment

   $ —        $ 921      $ 45      $ 966   

Ending balance: collectively evaluated for impairment

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

Loans:

        

Ending balance: individually evaluated for impairment

   $ —        $ 6,569      $ 84      $ 6,653   

Ending balance: collectively evaluated for impairment

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

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

     .10     3.09     9.80  

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

     .08     2.96     9.80  

Allowance as a percentage of ending total loans

     .13     5.54     24.85  

Allowance as a percentage of ending loans in repayment

     .19     7.11     24.85  

Allowance coverage of charge-offs (annualized)

     1.8        2.3        2.5     

Ending total loans(3)

   $ 131,512      $ 39,474      $ 236     

Average loans in repayment

   $ 92,436      $ 30,533      $ 241     

Ending loans in repayment

   $ 91,998      $ 30,731      $ 236     

 

(1)

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

 

(2) 

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

 

(3) 

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

 

10


Table of Contents

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

2.    Allowance for Loan Losses (Continued)

 

     Allowance for Loan Losses  
     Three Months Ended June 30, 2011  

(Dollars in millions)

   FFELP Loans     Private  Education
Loans
    Other
Loans
    Total  

Beginning balance

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

Total provision

     23        265        3        291   

Charge-offs(1)

     (21     (263     (14     (298

Student loan sales

     (3     —          —          (3

Reclassification of interest reserve(2)

     —          7        —          7   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 189      $ 2,043      $ 63      $ 2,295   
  

 

 

   

 

 

   

 

 

   

 

 

 

Allowance:

        

Ending balance: individually evaluated for impairment

   $ —        $ 134      $ 52      $ 186   

Ending balance: collectively evaluated for impairment

   $ 189      $ 1,909      $ 11      $ 2,109   

Loans:

        

Ending balance: individually evaluated for impairment

   $ —        $ 564      $ 102      $ 666   

Ending balance: collectively evaluated for impairment

   $ 141,048      $ 38,093      $ 194      $ 179,335   

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

     .09     3.71     17.59  

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

     .07     3.54     17.59  

Allowance as a percentage of ending total loans

     .13     5.28     21.46  

Allowance as a percentage of ending loans in repayment

     .20     7.07     21.46  

Allowance coverage of charge-offs (annualized)

     2.3        1.9        1.2     

Ending total loans(3)

   $ 141,048      $ 38,657      $ 296     

Average loans in repayment

   $ 94,318      $ 28,489      $ 312     

Ending loans in repayment

   $ 94,282      $ 28,871      $ 296     

 

(1) 

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

 

(2) 

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

 

(3) 

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

 

11


Table of Contents

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

2.    Allowance for Loan Losses (Continued)

 

     Allowance for Loan Losses  
     Six Months Ended June 30, 2012  

(Dollars in millions)

   FFELP Loans     Private  Education
Loans
    Other
Loans
    Total  

Beginning balance

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

Total provision

     36        460        —          496   

Charge-offs(1)

     (46     (459     (10     (515

Student loan sales

     (4     —          —          (4

Reclassification of interest reserve(2)

     —          14        —          14   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

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

 

 

   

 

 

   

 

 

   

 

 

 

Allowance:

        

Ending balance: individually evaluated for impairment

   $ —        $ 921      $ 45      $ 966   

Ending balance: collectively evaluated for impairment

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

Loans:

        

Ending balance: individually evaluated for impairment

   $ —        $ 6,569      $ 84      $ 6,653   

Ending balance: collectively evaluated for impairment

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

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

     .10     3.03     8.41  

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

     .08     2.90     8.41  

Allowance as a percentage of ending total loans

     .13     5.54     24.85  

Allowance as a percentage of ending loans in repayment

     .19     7.11     24.85  

Allowance coverage of charge-offs (annualized)

     1.9        2.4        2.8     

Ending total loans(3)

   $ 131,512      $ 39,474      $ 236     

Average loans in repayment

   $ 92,793      $ 30,456      $ 248     

Ending loans in repayment

   $ 91,998      $ 30,731      $ 236     

 

(1) 

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

 

(2) 

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

 

(3) 

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

 

12


Table of Contents

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

2.    Allowance for Loan Losses (Continued)

 

     Allowance for Loan Losses  
     Six Months Ended June 30, 2011  

(Dollars in millions)

   FFELP Loans     Private  Education
Loans
    Other
Loans
    Total  

Beginning balance

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

Total provision

     46        540        8        594   

Charge-offs(1)

     (41     (537     (17     (595

Student loan sales

     (5     —          —          (5

Reclassification of interest reserve(2)

     —          18        —          18   
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 189      $ 2,043      $ 63      $ 2,295   
  

 

 

   

 

 

   

 

 

   

 

 

 

Allowance:

        

Ending balance: individually evaluated for impairment

   $ —        $ 134      $ 52      $ 186   

Ending balance: collectively evaluated for impairment

   $ 189      $ 1,909      $ 11      $ 2,109   

Loans:

        

Ending balance: individually evaluated for impairment

   $ —        $ 564      $ 102      $ 666   

Ending balance: collectively evaluated for impairment

   $ 141,048      $ 38,093      $ 194      $ 179,335   

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

     .09     3.82     11.02  

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

     .07     3.65     11.02  

Allowance as a percentage of ending total loans

     .13     5.28     21.46  

Allowance as a percentage of ending loans in repayment

     .20     7.07     21.46  

Allowance coverage of charge-offs (annualized)

     2.3        1.9        1.8     

Ending total loans(3)

   $ 141,048      $ 38,657      $ 296     

Average loans in repayment

   $ 94,908      $ 28,309      $ 322     

Ending loans in repayment

   $ 94,282      $ 28,871      $ 296     

 

(1) 

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

 

(2) 

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

 

(3) 

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

 

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SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

2.    Allowance for Loan Losses (Continued)

 

Key Credit Quality Indicators

FFELP Loans are substantially insured and guaranteed as to their principal and accrued interest in the event of default; therefore, the key credit quality indicator for this portfolio is loan status. The impact of changes in loan status is incorporated quarterly into the allowance for loan losses calculation. For Private Education Loans, the key credit quality indicators are school type, FICO scores, the existence of a cosigner, the loan status and loan seasoning. The school type/FICO score are assessed at origination and maintained through the traditional/non-traditional loan designation. The other Private Education Loan key quality indicators can change and are incorporated quarterly into the allowance for loan losses calculation. The following table highlights the principal balance (excluding the receivable for partially charged-off loans) of our Private Education Loan portfolio stratified by the key credit quality indicators.

 

     Private Education Loans
Credit Quality Indicators
 
     June 30, 2012     December 31, 2011  

(Dollars in millions)

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

Credit Quality Indicators:

          

School Type/FICO Scores:

          

Traditional

   $ 34,790         91   $ 34,528         91

Non-Traditional(1)

     3,407         9        3,565         9   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 38,197         100   $ 38,093         100
  

 

 

    

 

 

   

 

 

    

 

 

 

Cosigners:

          

With cosigner

   $ 24,035         63   $ 23,507         62

Without cosigner

     14,162         37        14,586         38   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 38,197         100   $ 38,093         100
  

 

 

    

 

 

   

 

 

    

 

 

 

Seasoning(2):

          

1-12 payments

   $ 8,749         23   $ 9,246         24

13-24 payments

     6,656         17        6,837         18   

25-36 payments

     5,723         15        5,677         15   

37-48 payments

     3,924         10        3,778         10   

More than 48 payments

     7,047         19        6,033         16   

Not yet in repayment

     6,098         16        6,522         17   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 38,197         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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SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

2.    Allowance for Loan Losses (Continued)

 

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

 

     FFELP Loan Delinquencies  
     June 30,
2012
    December 31,
2011
 

(Dollars in millions)

   Balance     %     Balance     %  

Loans in-school/grace/deferment(1)

   $ 21,157        $ 22,887     

Loans in forbearance(2)

     18,357          19,575     

Loans in repayment and percentage of each status:

        

Loans current

     76,258        82.9     77,093        81.9

Loans delinquent 31-60 days(3)

     5,239        5.7        5,419        5.8   

Loans delinquent 61-90 days(3)

     2,816        3.1        3,438        3.7   

Loans delinquent greater than 90 days(3)

     7,685        8.3        8,231        8.6   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total FFELP Loans in repayment

     91,998        100     94,181        100
  

 

 

   

 

 

   

 

 

   

 

 

 

Total FFELP Loans, gross

     131,512          136,643     

FFELP Loan unamortized premium

     1,494          1,674     
  

 

 

     

 

 

   

Total FFELP Loans

     133,006          138,317     

FFELP Loan allowance for losses

     (173       (187  
  

 

 

     

 

 

   

FFELP Loans, net

   $ 132,833        $ 138,130     
  

 

 

     

 

 

   

Percentage of FFELP Loans in repayment

       70.0       68.9
    

 

 

     

 

 

 

Delinquencies as a percentage of FFELP Loans in repayment

       17.1       18.1
    

 

 

     

 

 

 

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

       16.6       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.

 

15


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SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

2.    Allowance for Loan Losses (Continued)

 

     Private Education Traditional Loan
Delinquencies
 
     June  30,
2012
    December  31,
2011
 

(Dollars in millions)

   Balance     %     Balance     %  

Loans in-school/grace/deferment(1)

   $ 5,529        $ 5,866     

Loans in forbearance(2)

     1,186          1,195     

Loans in repayment and percentage of each status:

        

Loans current

     25,669        91.4     25,110        91.4

Loans delinquent 31-60 days(3)

     862        3.1        868        3.2   

Loans delinquent 61-90 days(3)

     498        1.8        393        1.4   

Loans delinquent greater than 90 days(3)

     1,046        3.7        1,096        4.0   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total traditional loans in repayment

     28,075        100     27,467        100
  

 

 

   

 

 

   

 

 

   

 

 

 

Total traditional loans, gross

     34,790          34,528     

Traditional loans unamortized discount

     (760       (792  
  

 

 

     

 

 

   

Total traditional loans

     34,030          33,736     

Traditional loans receivable for partially charged-off loans

     739          705     

Traditional loans allowance for losses

     (1,589       (1,542  
  

 

 

     

 

 

   

Traditional loans, net

   $ 33,180        $ 32,899     
  

 

 

     

 

 

   

Percentage of traditional loans in repayment

       80.7       80.0
    

 

 

     

 

 

 

Delinquencies as a percentage of traditional loans in repayment

       8.6       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

       75.0       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.

 

16


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SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

2.    Allowance for Loan Losses (Continued)

 

     Private Education Non-Traditional
Loan Delinquencies
 
     June  30,
2012
    December  31,
2011
 

(Dollars in millions)

   Balance     %     Balance     %  

Loans in-school/grace/deferment(1)

   $ 569        $ 656     

Loans in forbearance(2)

     182          191     

Loans in repayment and percentage of each status:

        

Loans current

     1,981        74.5     2,012        74.0

Loans delinquent 31-60 days(3)

     196        7.4        208        7.7   

Loans delinquent 61-90 days(3)

     145        5.5        127        4.7   

Loans delinquent greater than 90 days(3)

     334        12.6        371        13.6   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total non-traditional loans in repayment

     2,656        100     2,718        100
  

 

 

   

 

 

   

 

 

   

 

 

 

Total non-traditional loans, gross

     3,407          3,565     

Non-traditional loans unamortized discount

     (74       (81  
  

 

 

     

 

 

   

Total non-traditional loans

     3,333          3,484     

Non-traditional loans receivable for partially charged-off loans

     538          536     

Non-traditional loans allowance for losses

     (597       (629  
  

 

 

     

 

 

   

Non-traditional loans, net

   $ 3,274        $ 3,391     
  

 

 

     

 

 

   

Percentage of non-traditional loans in repayment

       78.0       76.2
    

 

 

     

 

 

 

Delinquencies as a percentage of non-traditional loans in repayment

       25.5       26.0
    

 

 

     

 

 

 

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

       6.4       6.6
    

 

 

     

 

 

 

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

       66.6       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 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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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
June 30,
    Six Months Ended
June 30,
 

(Dollars in millions)

       2012             2011         2012     2011  

Receivable at beginning of period

   $ 1,250      $ 1,090      $ 1,241      $ 1,040   

Expected future recoveries of current period defaults(1)

     82        94        151        191   

Recoveries(2)

     (44     (37     (94     (77

Charge-offs(3)

     (11     (7     (21     (14
  

 

 

   

 

 

   

 

 

   

 

 

 

Receivable at end of period

   $ 1,277      $ 1,140      $ 1,277      $ 1,140   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

  (1) 

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

 

  (2) 

Current period cash collections.

 

  (3) 

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

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 $5.7 billion and $4.5 billion at June 30, 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 June 30, 2012 and December 31, 2011, respectively.

At June 30, 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
 

June 30, 2012

        

Private Education Loans — Traditional

   $ 5,198       $ 5,263       $ 669   

Private Education Loans — Non-Traditional

     1,215         1,222         252   
  

 

 

    

 

 

    

 

 

 

Total

   $ 6,413       $ 6,485       $ 921   
  

 

 

    

 

 

    

 

 

 

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.

 

18


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 June 30,  
    2012     2011  

(Dollars in millions)

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

Private Education Loans — Traditional

  $ 5,036      $ 81      $ 313      $ 4   

Private Education Loans — Non-Traditional

    1,206        26        192        3   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 6,242      $ 107      $ 505      $ 7   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

    Six Months Ended June 30,  
    2012     2011  

(Dollars in millions)

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

Private Education Loans — Traditional

  $ 4,772      $ 154      $ 295      $ 7   

Private Education Loans — Non-Traditional

    1,158        51        185        6   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 5,930      $ 205      $ 480      $ 13   
 

 

 

   

 

 

   

 

 

   

 

 

 

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 June 30,  
     2012      2011  

(Dollars in millions)

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

Private Education Loans — Traditional

   $ 554       $ 82       $ 69       $ 7   

Private Education Loans — Non-Traditional

     104         33         29         6   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 658       $ 115       $ 98       $ 13   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Six Months Ended June 30,  
     2012      2011  

(Dollars in millions)

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

Private Education Loans — Traditional

   $ 1,210       $ 148       $ 99       $ 13   

Private Education Loans — Non-Traditional

     245         62         45         14   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,455       $ 210       $ 144       $ 27   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

  (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.

 

19


Table of Contents

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

2.    Allowance for Loan Losses (Continued)

 

Accrued Interest Receivable

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

 

     Accrued Interest Receivable  

(Dollars in millions)

   Total      Greater Than
90 Days
Past Due
     Allowance for
Uncollectible
Interest
 

June 30, 2012

        

Private Education Loans — Traditional

   $ 846       $ 36       $ 46   

Private Education Loans — Non-Traditional

     127         16         25   
  

 

 

    

 

 

    

 

 

 

Total

   $ 973       $ 52       $ 71   
  

 

 

    

 

 

    

 

 

 

December 31, 2011

        

Private Education Loans — Traditional

   $ 870       $ 36       $ 44   

Private Education Loans — Non-Traditional

     148         18         28   
  

 

 

    

 

 

    

 

 

 

Total

   $ 1,018       $ 54       $ 72   
  

 

 

    

 

 

    

 

 

 

3.    Borrowings

The following table summarizes our borrowings.

 

     June 30, 2012      December 31, 2011  

(Dollars in millions)

   Short
Term
    Long
Term
     Total      Short
Term
     Long
Term
     Total  

Unsecured borrowings:

                

Senior unsecured debt

   $ 2,359      $ 16,131       $ 18,490       $ 1,801       $ 15,199       $ 17,000   

Brokered deposits

     765        1,550         2,315         1,733         1,956         3,689   

Retail and other deposits

     2,367        —           2,367         2,123         —           2,123   

Other(1)

     1,422        —           1,422         1,329         —           1,329   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total unsecured borrowings

     6,913        17,681         24,594         6,986         17,155         24,141   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Secured borrowings:

                

FFELP Loan securitizations

     —          107,545         107,545         —           107,905         107,905   

Private Education Loan securitizations

     —          19,803         19,803         —           19,297         19,297   

ED Conduit Program Facility

     15,903        —           15,903         21,313         —           21,313   

FFELP ABCP Facility

     —          5,435         5,435         —           4,445         4,445   

Private Education Loan ABCP Facility

     —          1,764         1,764         —           1,992         1,992   

Acquisition financing(2)

     —          813         813         —           916         916   

FHLB-DM Facility

     1,680        —           1,680         1,210         —           1,210   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total secured borrowings

     17,583        135,360         152,943         22,523         134,555         157,078   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total before hedge accounting adjustments

     24,496        153,041         177,537         29,509         151,710         181,219   

Hedge accounting adjustments

     (3     2,435         2,432         64         2,683         2,747   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 24,493      $ 155,476       $ 179,969       $ 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.

 

20


Table of Contents

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: