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

 

 

 

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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

 

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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.

 

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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.

 

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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.

 

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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.

 

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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.

 

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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.

 

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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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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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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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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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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.

 

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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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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.

 

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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

 

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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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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			—				—				—				—
Cash paid			(44	)			(3	)			(4	)			(51	)
Balance at December 31, 2011			10				1				—				11
Net accruals from continuing operations			5				—				—				5
Net accruals from discontinued operations			—				—				—				—
Cash paid			(7	)			—				—				(7	)
Balance at March 31, 2012		$	8			$	1			$	—			$	9

 

9.	Fair Value Measurements

We use estimates of fair value in applying various accounting standards in our financial statements. We categorize our fair value estimates based on a hierarchical framework associated with three levels of price transparency utilized in measuring financial instruments at fair value. During the three months ended March 31, 2012, there were no significant transfers of financial instruments between levels, or changes in our methodology or assumptions used to value our financial instruments. Please refer to “Note 13 — Fair Value Measurements” in our 2011 Form 10-K for a full discussion.

 

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SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

 

9.	Fair Value Measurements (Continued)

 

The following tables summarize the valuation of our financial instruments that are marked-to-market on a recurring basis.

 

 

		Fair Value Measurements on a Recurring Basis as of March 31, 2012																Fair Value Measurements on a Recurring Basis as of December 31, 2011
(Dollars in millions)		Level 1				Level 2				Level 3				Total				Level 1				Level 2				Level 3				Total
Assets
Available-for-sale investments:
Agency residential mortgage backed securities		$	—			$	53			$	—			$	53			$	—			$	59			$	—			$	59
Guaranteed investment contracts			—				27				—				27				—				20				—				20
Other			—				12				—				12				—				11				—				11
Total available-for-sale investments			—				92				—				92				—				90				—				90
Derivative instruments:(1)
Interest rate swaps			—				1,398				124				1,522				—				1,550				183				1,733
Cross currency interest rate swaps			—				160				1,321				1,481				—				139				1,220				1,359
Other			—				—				—				—				—				—				1				1