Edgar Filing: SLM CORP

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10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2014

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):

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, 2014
Common Stock, $0.20 par value		422,781,435 shares

EXPLANATORY NOTE

On April 30, 2014, SLM Corporation (“Sallie Mae”, “SLM”, the “Company”, “we”, “our”, or “us”) completed its plan to separate into two distinct publicly-traded entities—an education loan management, servicing and asset recovery business, Navient Corporation (“Navient”), and a consumer banking business, SLM. The separation of Navient from SLM Corporation was preceded by an internal corporate reorganization, which was the first step to separate the education loan management, servicing and asset recovery business from the consumer banking business. As a result of a holding company merger under Section 251(g) of the Delaware General Corporation Law (“DGCL”), which is referred to herein as the “SLM Merger,” all of the shares of then existing SLM Corporation’s common stock were converted, on a 1-to-1 basis, into shares of common stock of New BLC Corporation, a newly formed company that was a subsidiary of then existing SLM Corporation, and, pursuant to the SLM Merger, New BLC Corporation replaced then existing SLM Corporation as the publicly-traded registrant and changed its name to SLM Corporation. As part of the internal corporate reorganization, the assets and liabilities associated with the education loan management, servicing and asset recovery business were transferred to Navient, and those assets and liabilities associated with the consumer banking business remained with or were transferred to the newly constituted SLM. Immediately after the internal corporate reorganization, SLM owned all of the issued and outstanding shares of Navient common stock, which it distributed on April 30, 2014 to the stockholders of record on April 22, 2014 of then existing SLM Corporation. The internal reorganization and the distribution are sometimes collectively referred to herein as the “Spin-Off” and SLM Corporation as it existed prior to completion of the Spin-Off is sometimes referred to herein as “Existing SLM.” SLM Corporation as it now exists after the Spin-Off is referred to herein as “Sallie Mae,” the “Company,” “SLM,” “we,” “our” or “us.” Upon completion of the internal reorganization, Existing SLM became a limited liability company wholly-owned by Navient and changed its name to Navient, LLC. For further information regarding the Spin-Off, risk factors of Sallie Mae related to the Spin-Off and the business to be conducted by Sallie Mae after the Spin-Off, please see our 2013 Form 10-K filed with the SEC on February 19, 2014 and our Form 8-K filed with the SEC on December 20, 2013. For further information regarding Navient, risk factors of Navient related to the Spin-Off and the business to be conducted by Navient after the Spin-Off, please see the registration statement on Form 10, as amended, filed by Navient with the SEC on April 10, 2014 and declared effective on April 14, 2014, which can be accessed through the SEC’s website at www.sec.gov/edgar.

Given the Spin-Off occurred in the second quarter of 2014, this Quarterly Report on Form 10-Q for the three months ended March 31, 2014 relates to Existing SLM and contains consolidated financial information of Existing SLM prior to the Spin-Off, including the financial results of the education loan management, servicing and asset recovery business (i.e., Navient). On May 6, 2014, Sallie Mae filed a Current Report on Form 8-K providing pro forma unaudited condensed consolidated financial information of stand-alone Sallie Mae and its subsidiaries for the three months ended March 31, 2014, as adjusted to give effect to the Spin-Off of Navient. Additionally, that Current Report on Form 8-K contained historical carve-out audited financial statements of Sallie Mae and its subsidiaries on a stand-alone basis for each of the three years ended December 31, 2013, December 31, 2012 and December 31, 2011, as adjusted for the effects of the Spin-Off. Sallie Mae’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2014 and Sallie Mae’s future financial reports to be filed with the SEC will be prepared on the same stand-alone basis as the historical audited financial statements contained in this Current Report on Form 8-K.

Capitalized terms used herein and not otherwise defined have the meanings ascribed to such terms in our 2013 Form 10-K.

SLM CORPORATION

Table of Contents


Part I. Financial Information

Item 1.	Financial Statements	1

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	37

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	81

Item 4.	Controls and Procedures	86

PART II. Other Information

Item 1.	Legal Proceedings	87

Item 1A.	Risk Factors	88

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	89

Item 3.	Defaults Upon Senior Securities	89

Item 4.	Mine Safety Disclosures	89

Item 5.	Other Information	89

Item 6.	Exhibits	90

The information and financial reports contained in this Quarterly Report on Form 10-Q do not reflect the subsequent Spin-Off of Navient on April 30, 2014. Carved out audited consolidated financial statements on a stand-alone basis for each of the three years ended December 31, 2013, 2012 and 2011, as well as certain unaudited pro forma condensed financial and statistical information of Sallie Mae and its subsidiaries effective March 31, 2014 are contained in the Company’s Current Report on Form 8-K filed with the SEC on May 6, 2014.

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

SLM CORPORATION

CONSOLIDATED BALANCE SHEETS

(In millions, except share and per share amounts)

(Unaudited)


	March 31, 2014			December 31, 2013
Assets
FFELP Loans (net of allowance for losses of $107 and $119, respectively)	$	102,635		$	104,588
Private Education Loans (net of allowance for losses of $2,059 and $2,097 respectively)		38,157			37,512
Investments
Available-for-sale		135			109
Other		652			783

Total investments		787			892
Cash and cash equivalents		3,742			5,190
Restricted cash and investments		3,794			3,650
Goodwill and acquired intangible assets, net		421			424
Other assets		6,936			7,287

Total assets	$	156,472		$	159,543

Liabilities
Short-term borrowings	$	11,626		$	13,795
Long-term borrowings		136,177			136,648
Other liabilities		3,071			3,458

Total liabilities		150,874			153,901

Commitments and contingencies
Equity
Preferred stock, par value $0.20 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 $0.20 per share, 1.125 billion shares authorized: 549 million and 545 million shares issued, respectively		110			109
Additional paid-in capital		4,461			4,399
Accumulated other comprehensive income (loss) (net of tax (expense) benefit of $(4) and $(7), respectively)		7			13
Retained earnings		2,733			2,584

Total SLM Corporation stockholders’ equity before treasury stock		7,876			7,670
Less: Common stock held in treasury at cost: 127 million and 116 million shares, respectively		(2,283	)		(2,033	)

Total SLM Corporation stockholders’ equity		5,593			5,637
Noncontrolling interest		5			5

Total equity		5,598			5,642

Total liabilities and equity	$	156,472		$	159,543

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


	March 31, 2014		December 31, 2013
FFELP Loans	$	97,380	$	99,254
Private Education Loans		25,139		25,530
Restricted cash and investments		3,618		3,395
Other assets		2,163		2,322
Short-term borrowings		1,694		3,655
Long-term borrowings		115,533		115,538

Net assets of consolidated variable interest entities	$	11,073	$	11,308

See accompanying notes to consolidated financial statements.

SLM CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(In millions, except per share amounts)

(Unaudited)


	Three Months Ended March 31,
	2014			2013
Interest income:
FFELP Loans	$	646		$	735
Private Education Loans		644			623
Other loans		3			3
Cash and investments		3			5

Total interest income		1,296			1,366
Total interest expense		530			571

Net interest income		766			795
Less: provisions for loan losses		185			241

Net interest income after provisions for loan losses		581			554

Other income (loss):
Gains on sales of loans and investments		—			55
Losses on derivative and hedging activities, net		(8	)		(31	)
Servicing revenue		61			70
Contingency revenue		111			99
Gains on debt repurchases		—			23
Other		6			34

Total other income (loss)		170			250

Expenses:
Salaries and benefits		142			125
Other operating expenses		224			110

Total operating expenses		366			235
Goodwill and acquired intangible asset impairment and amortization expense		4			3
Restructuring and other reorganization expenses		26			10

Total expenses		396			248

Income from continuing operations, before income tax expense		355			556
Income tax expense		136			211

Net income from continuing operations		219			345
Income from discontinued operations, net of tax expense		—			1

Net income		219			346
Less: net loss attributable to noncontrolling interest		—			—

Net income attributable to SLM Corporation		219			346
Preferred stock dividends		5			5

Net income attributable to SLM Corporation common stock	$	214		$	341

Basic earnings per common share attributable to SLM Corporation:
Continuing operations	$	.50		$	.76
Discontinued operations		—			—

Total	$	.50		$	.76

Average common shares outstanding		427			451

Diluted earnings per common share attributable to SLM Corporation:
Continuing operations	$	.49		$	.74
Discontinued operations		—			—

Total	$	.49		$	.74

Average common and common equivalent shares outstanding		435			458

Dividends per common share attributable to SLM Corporation	$	.15		$	.15

See accompanying notes to consolidated financial statements.

SLM CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(Unaudited)


	Three Months Ended March 31,
	2014			2013
Net income	$	219		$	346
Other comprehensive income (loss):
Unrealized gains (losses) on derivatives:
Unrealized hedging gains (losses) on derivatives		(11	)		1
Reclassification adjustments for derivative losses included in net income (interest expense)		3			3

Total unrealized gains (losses) on derivatives		(8	)		4
Unrealized gains (losses) on investments		—			(1	)
Income tax (expense) benefit		2			(1	)

Other comprehensive income (loss), net of tax		(6	)		2

Total comprehensive income	$	213		$	348

See accompanying notes to consolidated financial statements.

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
	Preferred Stock Shares		Issued		Treasury			Outstanding			Preferred Stock		Common Stock		Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Treasury Stock			Total Stockholders’ Equity			Noncontrolling Interest		Total Equity
Balance at December 31, 2012		7,300,000		535,507,965		(82,910,021	)		452,597,944		$	565	$	107	$	4,237	$	(6	)	$	1,451		$	(1,294	)	$	5,060		$	6	$	5,066
Comprehensive income:
Net income (loss)		—		—		—			—			—		—		—		—			346			—			346			—		346
Other comprehensive income, net of tax		—		—		—			—			—		—		—		2			—			—			2			—		2

Total comprehensive income		—		—		—			—			—		—		—		—			—			—			348			—		348
Cash dividends:
Common stock ($.15 per share)		—		—		—			—			—		—		—		—			(68	)		—			(68	)		—		(68	)
Preferred stock, series A ($.87 per share)		—		—		—			—			—		—		—		—			(3	)		—			(3	)		—		(3	)
Preferred stock, series B ($.49 per share)		—		—		—			—			—		—		—		—			(2	)		—			(2	)		—		(2	)
Dividend equivalent units related to employee stock-based compensation plans		—		—		—			—			—		—		—		—			(1	)		—			(1	)		—		(1	)
Issuance of common shares		—		4,157,795		—			4,157,795			—		1		33		—			—			—			34			—		34
Tax benefit related to employee stock-based compensation plans		—		—		—			—			—		—		2		—			—			—			2			—		2
Stock-based compensation expense		—		—		—			—			—		—		19		—			—			—			19			—		19
Common stock repurchased		—		—		(10,220,804	)		(10,220,804	)		—		—		—		—			—			(199	)		(199	)		—		(199	)
Shares repurchased related to employee stock-based compensation plans		—		—		(2,324,575	)		(2,324,575	)		—		—		—		—			—			(42	)		(42	)		—		(42	)

Balance at March 31, 2013		7,300,000		539,665,760		(95,455,400	)		444,210,360		$	565	$	108	$	4,291	$	(4	)	$	1,723		$	(1,535	)	$	5,148		$	6	$	5,154

Balance at December 31, 2013		7,300,000		545,210,941		(116,262,066	)		428,948,875		$	565	$	109	$	4,399	$	13		$	2,584		$	(2,033	)	$	5,637		$	5	$	5,642
Comprehensive income:
Net income (loss)		—		—		—			—			—		—		—		—			219			—			219			—		219
Other comprehensive income, net of tax		—		—		—			—			—		—		—		(6	)		—			—			(6	)		—		(6	)

Total comprehensive income		—		—		—			—			—		—		—		—			—			—			213			—		213
Cash dividends:
Common stock ($.15 per share)		—		—		—			—			—		—		—		—			(64	)		—			(64	)		—		(64	)
Preferred stock, series A ($.87 per share)		—		—		—			—			—		—		—		—			(3	)		—			(3	)		—		(3	)
Preferred stock, series B ($.49 per share)		—		—		—			—			—		—		—		—			(2	)		—			(2	)		—		(2	)
Dividend equivalent units related to employee stock-based compensation plans		—		—		—			—			—		—		—		—			(1	)		—			(1	)		—		(1	)
Issuance of common shares		—		4,238,182		—			4,238,182			—		1		33		—			—			—			34			—		34
Tax benefit related to employee stock-based compensation plans		—		—		—			—			—		—		11		—			—			—			11			—		11
Stock-based compensation expense		—		—		—			—			—		—		18		—			—			—			18			—		18
Common stock repurchased		—		—		(8,368,300	)		(8,368,300	)		—		—		—		—			—			(200	)		(200	)		—		(200	)
Shares repurchased related to employee stock-based compensation plans		—		—		(2,115,470	)		(2,115,470	)		—		—		—		—			—			(50	)		(50	)		—		(50	)

Balance at March 31, 2014		7,300,000		549,449,123		(126,745,836	)		422,703,287		$	565	$	110	$	4,461	$	7		$	2,733		$	(2,283	)	$	5,593		$	5	$	5,598

See accompanying notes to consolidated financial statements.

SLM CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in millions)

(Unaudited)


	Three Months Ended March 31,
	2014			2013
Operating activities
Net income	$	219		$	346
Adjustments to reconcile net income to net cash provided by operating activities:
Income from discontinued operations, net of tax		—			(1	)
Gains on loans and investments, net		—			(55	)
Gains on debt repurchases		—			(23	)
Goodwill and acquired intangible asset impairment and amortization expense		4			3
Stock-based compensation expense		18			19
Unrealized gains on derivative and hedging activities		(181	)		(138	)
Provisions for loan losses		185			241
Decrease (increase) in restricted cash — other		5			(15	)
Decrease in accrued interest receivable		109			19
(Decrease) increase in accrued interest payable		(69	)		2
Decrease in other assets		257			291
Increase (decrease) in other liabilities		11			(158	)

Cash provided by operating activities — continuing operations		558			531

Cash (used in) operating activities — discontinued operations		—			(2	)

Total net cash provided by operating activities		558			529

Investing activities
Student loans acquired and originated		(1,975	)		(1,559	)
Reduction of student loans:
Installment payments, claims and other		3,090			3,349
Proceeds from sales of student loans		—			226
Other investing activities, net		119			65
Purchases of available-for-sale securities		(25	)		(14	)
Proceeds from maturities of available-for-sale securities		2			9
Purchases of held-to-maturity and other securities		(65	)		(93	)
Proceeds from sales and maturities of held-to-maturity and other securities		67			94
(Increase) decrease in restricted cash — variable interest entities		(221	)		107

Total net cash provided by investing activities		992			2,184

Financing activities
Borrowings collateralized by loans in trust — issued		2,649			2,588
Borrowings collateralized by loans in trust — repaid		(2,834	)		(3,182	)
Asset-backed commercial paper conduits, net		(1,918	)		427
ED Conduit Program facility, net		—			(2,583	)
Other long-term borrowings issued		834			1,489
Other long-term borrowings repaid		(1,535	)		(1,433	)
Other financing activities, net		(11	)		(358	)
Retail and other deposits, net		86			396
Common stock repurchased		(200	)		(199	)
Common stock dividends paid		(64	)		(68	)
Preferred stock dividends paid		(5	)		(5	)

Net cash used in financing activities		(2,998	)		(2,928	)

Net decrease in cash and cash equivalents		(1,448	)		(215	)
Cash and cash equivalents at beginning of period		5,190			3,900

Cash and cash equivalents at end of period	$	3,742		$	3,685

Cash disbursements made (refunds received) for:
Interest	$	519		$	568

Income taxes paid	$	38		$	15

Income taxes received	$	(1	)	$	(1	)

Noncash activity:
Investing activity — Student loans and other assets removed related to sale of Residual Interest in securitization	$	—		$	(3,665	)

Financing activity — Borrowings removed related to sale of Residual Interest in securitization	$	—		$	(3,681	)

See accompanying notes to consolidated financial statements.

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information at March 31, 2014 and for the three months ended

March 31, 2014 and 2013 is unaudited)

1.	Organization and Business

On May 29, 2013, the board of directors of our predecessor registrant (“Existing SLM”) first announced its intent to separate into two distinct publicly traded entities — a loan management, servicing and asset recovery business and a consumer banking business. The loan management, servicing and asset recovery business, Navient Corporation (“Navient”), would be comprised primarily of Existing SLM’s portfolios of education loans not currently held in Sallie Mae Bank, as well as servicing and asset recovery activities on these loans and loans held by third parties. The consumer banking business would be comprised primarily of Sallie Mae Bank and its Private Education Loan origination business, the Private Education Loans it holds and a related servicing business, and will be a consumer banking franchise with expertise in helping families save, plan and pay for college.

On April 8, 2014, Existing SLM approved the distribution of all of the issued and outstanding shares of Navient common stock on the basis of one share of Navient common stock for each share of Existing SLM common stock issued and outstanding as of the close of business on April 22, 2014, the record date for the distribution. The distribution occurred on April 30, 2014. The separation of Navient from the Company was preceded by an internal corporate reorganization, which was the first step to separate the consumer banking business and the education loan management, servicing and asset recovery business. As a result of a holding company merger under Section 251(g) of the Delaware General Corporation Law (“DGCL”), which is referred to herein as the “SLM Merger” and was effective on April 29, 2014, New BLC Corporation (“SLM BankCo”) replaced Existing SLM as the parent holding company of Sallie Mae. In accordance with Section 251(g) of the Delaware General Corporation Law, by action of the Existing SLM board of directors and without a shareholder vote, Existing SLM was merged into Navient, LLC, a wholly-owned subsidiary of SLM BankCo, with Navient, LLC surviving (“Existing SLM SurvivorCo”). Immediately following the effective time of the Merger, SLM BankCo changed its name to “SLM Corporation” and became the successor registrant to Existing SLM (“SLM”, the “Company,” “we,” “our” or “us”). Following the SLM Merger and as part of the internal corporate reorganization, the assets and liabilities associated with the education loan management, servicing and asset recovery business were transferred to Navient, and those assets and liabilities associated with the consumer banking business remained with, or were transferred to, SLM. The internal reorganization and the distribution of Navient common stock are sometimes collectively referred to herein as the “Spin-Off.” The Spin-Off is intended to be tax-free to stockholders of SLM. For further information on the Spin-Off, please refer to our Annual Report on Form 10-K for the fiscal year ended December 31, 2013 (the “2013 Form 10-K”).

Due to the relative significance of Navient to Existing SLM, among other factors, for financial reporting purposes Navient is treated as the “accounting spinnor” and therefore is the “accounting successor” to Existing SLM, notwithstanding the legal form of the separation and distribution. As a result, the historical financial statements of Existing SLM are the historical financial statements of Navient. Navient will show the distribution of the approximate $1.7 billion of consumer banking business net assets as of the distribution date.

Shortly after the completion of the Spin-Off, SLM issued audited consolidated financial statements on a stand-alone basis for SLM and its subsidiaries for each of the three years ended December 31, 2013. These carve-out financial statements were presented on a basis of accounting that reflects a change in reporting entity. They reflected the results of the consumer banking business and did not include Navient’s results. As previously

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1.	Organization and Business (Continued)

discussed, the historical financial statements of Existing SLM prior to the Spin-Off have become the historical financial statements of Navient. As a result, the presentation of the financial results of the business and operations of SLM, for periods arising after the completion of the Spin-Off will be substantially different from the presentation of Existing SLM’s financial results in its prior filings with the Securities and Exchange Commission (the “SEC”). To provide additional information to SLM’s investors regarding the anticipated impact of the Spin-Off, Existing SLM (our predecessor registrant) included certain unaudited pro forma financial information in the 2013 Form 10-K, on a carve-out stand-alone basis as of and for the year ended December 31, 2013, to provide some reference for SLM’s expected reissued historical financial statements post Spin-Off and future manner of presentation of its financial condition and results of operations. For further information regarding SLM’s historical carve-out financial statements, please refer to our Form 8-K filed on May 6, 2014. SLM will report its results on the basis of the historical carve-out financial statements beginning with its Form 10-Q for the quarter ended June 30, 2014.

2.	Significant Accounting Policies

Basis of Presentation

The accompanying unaudited, consolidated financial statements of Existing SLM 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 Existing SLM 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, 2014 are not necessarily indicative of the results for the year ending December 31, 2014 or for any other period.

Consolidation

In first-quarter 2013, Existing SLM sold the Residual Interest in a FFELP Loan securitization trust to a third party. Navient will continue to service the student loans in the trust under existing agreements. Prior to the sale of the Residual Interest, Existing SLM had consolidated the trust as a VIE because we had met the two criteria for consolidation. We had determined we were the primary beneficiary because (1) as servicer to the trust we had the power to direct the activities of the VIE that most significantly affected its economic performance and (2) as the residual holder of the trust we had an obligation to absorb losses or receive benefits of the trust that could potentially be significant. Upon the sale of the Residual Interest we are no longer the residual holder, thus we determined we no longer met criterion (2) above and deconsolidated the trust. As a result of this transaction we removed trust assets of $3.8 billion and the related liabilities of $3.7 billion from the balance sheet and recorded a $55 million gain as part of “gains on sales of loans and investments.”

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.	Significant Accounting Policies (Continued)

Reclassifications

Certain reclassifications have been made to the balances as of and for the three months ended March 31, 2013 to be consistent with classifications adopted for 2014, and had no effect on net income, total assets, or total liabilities.

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

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3.	Allowance for Loan Losses (Continued)

Allowance for Loan Losses Metrics


	Three Months Ended March 31, 2014
(Dollars in millions)	FFELP Loans			Private Education Loans			Other Loans			Total
Allowance for Loan Losses
Beginning balance	$	119		$	2,097		$	28		$	2,244
Total provision		10			175			—			185
Charge-offs⁽¹⁾		(22	)		(218	)		(1	)		(241	)
Reclassification of interest reserve⁽²⁾		—			5			—			5

Ending balance	$	107		$	2,059		$	27		$	2,193

Allowance:
Ending balance: individually evaluated for impairment	$	—		$	1,081		$	20		$	1,101
Ending balance: collectively evaluated for impairment	$	107		$	978		$	7		$	1,092
Loans:
Ending balance: individually evaluated for impairment	$	—		$	9,590		$	44		$	9,634
Ending balance: collectively evaluated for impairment	$	101,727		$	31,307		$	79		$	133,113
Charge-offs as a percentage of average loans in repayment (annualized)		.12	%		2.82	%		3.62	%
Charge-offs as a percentage of average loans in repayment and forbearance (annualized)		.10	%		2.72	%		3.62	%
Allowance as a percentage of the ending total loan balance		.10	%		5.03	%		21.80	%
Allowance as a percentage of the ending loans in repayment		.15	%		6.58	%		21.80	%
Allowance coverage of charge-offs (annualized)		1.2			2.3			5.9
Ending total loans⁽³⁾	$	101,727		$	40,897		$	123
Average loans in repayment	$	73,496		$	31,416		$	126
Ending loans in repayment	$	73,061		$	31,309		$	123

⁽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 any shortfalls in 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.

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3.	Allowance for Loan Losses (Continued)


	Three Months Ended March 31, 2013
(Dollars in millions)	FFELP Loans			Private Education Loans			Other Loans			Total
Allowance for Loan Losses
Beginning balance	$	159		$	2,171		$	47		$	2,377
Total provision		16			225			—			241
Charge-offs⁽¹⁾		(22	)		(232	)		(5	)		(259	)
Student loan sales		(6	)		—			—			(6	)
Reclassification of interest reserve⁽²⁾		—			6			—			6

Ending balance	$	147		$	2,170		$	42		$	2,359

Allowance:
Ending balance: individually evaluated for impairment	$	—		$	1,157		$	31		$	1,188
Ending balance: collectively evaluated for impairment	$	147		$	1,013		$	11		$	1,171
Loans:
Ending balance: individually evaluated for impairment	$	—		$	8,018		$	65		$	8,083
Ending balance: collectively evaluated for impairment	$	118,058		$	32,389		$	106		$	150,553
Charge-offs as a percentage of average loans in repayment (annualized)		.10	%		2.97	%		10.95	%
Charge-offs as a percentage of average loans in repayment and forbearance (annualized)		.09	%		2.87	%		10.95	%

Allowance as a percentage of the ending total loan balance		.12	%		5.37	%		24.55	%
Allowance as a percentage of the ending loans in repayment		.17	%		6.88	%		24.55	%
Allowance coverage of charge-offs (annualized)		1.6			2.3			2.1
Ending total loans⁽³⁾	$	118,058		$	40,407		$	171
Average loans in repayment	$	87,256		$	31,645		$	179
Ending loans in repayment	$	85,304		$	31,533		$	171

⁽¹⁾

⁽²⁾

⁽³⁾

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

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3.	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, 2014					December 31, 2013
(Dollars in millions)	Balance⁽³⁾		% of Balance			Balance⁽³⁾		% of Balance
Credit Quality Indicators
School Type/FICO Scores:
Traditional	$	36,822		93	%	$	36,140		93	%
Non-Traditional⁽¹⁾		2,778		7			2,860		7

Total	$	39,600		100	%	$	39,000		100	%

Cosigners:
With cosigner	$	27,084		68	%	$	26,321		67	%
Without cosigner		12,516		32			12,679		33

Total	$	39,600		100	%	$	39,000		100	%

Seasoning⁽²⁾:
1-12 payments	$	5,305		13	%	$	5,171		14	%
13-24 payments		5,282		13			5,511		14
25-36 payments		5,186		13			5,506		14
37-48 payments		5,038		13			5,103		13
More than 48 payments		11,714		30			11,181		29
Not yet in repayment		7,075		18			6,528		16

Total	$	39,600		100	%	$	39,000		100	%

⁽¹⁾	Defined as loans to customers attending for-profit schools (with a FICO score of less than 670 at origination) and customers 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.

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3.	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, 2014						December 31, 2013
(Dollars in millions)	Balance			%			Balance			%
Loans in-school/grace/deferment⁽¹⁾	$	13,016					$	13,678
Loans in forbearance⁽²⁾		15,650						13,490
Loans in repayment and percentage of each status:
Loans current		62,721			85.9	%		63,330			82.8	%
Loans delinquent 31-60 days⁽³⁾		3,059			4.2			3,746			4.9
Loans delinquent 61-90 days⁽³⁾		1,784			2.4			2,207			2.9
Loans delinquent greater than 90 days⁽³⁾		5,497			7.5			7,221			9.4

Total FFELP Loans in repayment		73,061			100	%		76,504			100	%

Total FFELP Loans, gross		101,727						103,672
FFELP Loan unamortized premium		1,015						1,035

Total FFELP Loans		102,742						104,707
FFELP Loan allowance for losses		(107	)					(119	)

FFELP Loans, net	$	102,635					$	104,588

Percentage of FFELP Loans in repayment					71.8	%					73.8	%

Delinquencies as a percentage of FFELP Loans in repayment					14.2	%					17.2	%

FFELP Loans in forbearance as a percentage of loans in repayment and forbearance					17.6	%					15.0	%

⁽¹⁾

Loans for customers who may still be attending school or engaging in other permitted educational activities and are not 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 customers who have requested and qualify for other permitted program deferments such as military, unemployment, or economic hardships.

⁽²⁾	Loans for customers 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.

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3.	Allowance for Loan Losses (Continued)


	Private Education Traditional Loan Delinquencies
	March 31, 2014						December 31, 2013
(Dollars in millions)	Balance			%			Balance			%
Loans in-school/grace/deferment⁽¹⁾	$	6,637					$	6,088
Loans in forbearance⁽²⁾		1,069						969
Loans in repayment and percentage of each status:
Loans current		27,364			94.0	%		26,977			92.8	%
Loans delinquent 31-60 days⁽³⁾		550			1.9			674			2.3
Loans delinquent 61-90 days⁽³⁾		353			1.2			420			1.4
Loans delinquent greater than 90 days⁽³⁾		849			2.9			1,012			3.5

Total traditional loans in repayment		29,116			100	%		29,083			100	%

Total traditional loans, gross		36,822						36,140
Traditional loans unamortized discount		(609	)					(629	)

Total traditional loans		36,213						35,511
Traditional loans receivable for partially charged-off loans		795						799
Traditional loans allowance for losses		(1,583	)					(1,592	)

Traditional loans, net	$	35,425					$	34,718

Percentage of traditional loans in repayment					79.1	%					80.5	%

Delinquencies as a percentage of traditional loans in repayment					6.0	%					7.2	%

Loans in forbearance as a percentage of loans in repayment and forbearance					3.5	%					3.2	%

⁽¹⁾	Deferment includes customers who have returned to school or are engaged in other permitted educational activities and are not 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 customers 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.

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3.	Allowance for Loan Losses (Continued)


	Private Education Non-Traditional Loan Delinquencies
	March 31, 2014						December 31, 2013
(Dollars in millions)	Balance			%			Balance			%
Loans in-school/grace/deferment⁽¹⁾	$	438					$	440
Loans in forbearance⁽²⁾		147						133
Loans in repayment and percentage of each status:
Loans current		1,792			81.7	%		1,791			78.3	%
Loans delinquent 31-60 days⁽³⁾		105			4.8			128			5.6
Loans delinquent 61-90 days⁽³⁾		77			3.5			93			4.1
Loans delinquent greater than 90 days⁽³⁾		219			10.0			275			12.0

Total non-traditional loans in repayment		2,193			100	%		2,287			100	%

Total non-traditional loans, gross		2,778						2,860
Non-traditional loans unamortized discount		(72	)					(75	)

Total non-traditional loans		2,706						2,785
Non-traditional loans receivable for partially charged-off loans		502						514
Non-traditional loans allowance for losses		(476	)					(505	)

Non-traditional loans, net	$	2,732					$	2,794

Percentage of non-traditional loans in repayment					79.0	%					80.0	%

Delinquencies as a percentage of non-traditional loans in repayment					18.3	%					21.7	%

Loans in forbearance as a percentage of loans in repayment and forbearance					6.3	%					5.5	%

⁽¹⁾	Deferment includes customers who have returned to school or are engaged in other permitted educational activities and are not 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 customers 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. Private Education Loans which defaulted between 2008 and 2013 for which we have previously charged off estimated

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3.	Allowance for Loan Losses (Continued)

losses have, to varying degrees, not met our post-default recovery expectations to date and may continue not to do so. According to our policy, we have been charging off these periodic shortfalls in expected recoveries against our allowance for Private Education Loan losses and the related receivable for partially charged-off Private Education Loans and we will continue to do so. There was $334 million and $209 million in the allowance for Private Education Loan losses at March 31, 2014 and 2013, respectively, providing for possible additional future charge-offs related to the receivable for partially charged-off Private Education Loans.

The following table summarizes the activity in the receivable for partially charged-off Private Education Loans.


	Three Months Ended March 31,
(Dollars in millions)	2014			2013
Receivable at beginning of period	$	1,313		$	1,347
Expected future recoveries of current period defaults⁽¹⁾		71			78
Recoveries⁽²⁾		(61	)		(68	)
Charge-offs⁽³⁾		(26	)		(18	)

Receivable at end of period		1,297			1,339
Allowance for estimated recovery shortfalls⁽⁴⁾		(334	)		(209	)

Net receivable at end of period	$	963		$	1,130

⁽¹⁾

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

⁽²⁾

Current period cash recoveries.

⁽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.

⁽⁴⁾

The allowance for estimated recovery shortfalls of the receivable for partially charged-off Private Education Loans is a component of the $2.1 billion and $2.2 billion overall allowance for Private Education Loan losses as of March 31, 2014 and 2013, respectively.

Troubled Debt Restructurings (“TDRs”)

We modify the terms of loans for certain customers when we believe such modifications may increase the ability and willingness of a customer 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 customers experiencing financial difficulty, certain Private Education Loans for which we have granted either a forbearance of greater than three months, an interest rate reduction or an extended repayment plan are classified as TDRs. Approximately 46 percent and 45 percent of the loans granted forbearance have qualified as a TDR loan at March 31, 2014 and December 31, 2013, respectively. The unpaid principal balance of TDR loans that were in an interest rate reduction plan as of March 31, 2014 and December 31, 2013 was $1.7 billion and $1.5 billion, respectively.

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3.	Allowance for Loan Losses (Continued)

At March 31, 2014 and December 31, 2013, all of our TDR loans had a related allowance recorded. The following table provides the recorded investment, unpaid principal balance and related allowance for our TDR loans.


	TDR Loans
(Dollars in millions)	Recorded Investment⁽¹⁾		Unpaid Principal Balance		Related Allowance
March 31, 2014
Private Education Loans — Traditional	$	7,800	$	7,856	$	852
Private Education Loans — Non-Traditional		1,441		1,439		229

Total	$	9,241	$	9,295	$	1,081

December 31, 2013
Private Education Loans — Traditional	$	7,515	$	7,559	$	812
Private Education Loans — Non-Traditional		1,434		1,427		236

Total	$	8,949	$	8,986	$	1,048

⁽¹⁾

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

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


	Three Months Ended March 31,
	2014				2013
(Dollars in millions)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Private Education Loans — Traditional	$	7,631	$	118	$	6,185	$	96
Private Education Loans — Non-Traditional		1,434		29		1,315		27

Total	$	9,065	$	147	$	7,500	$	123

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3.	Allowance for Loan Losses (Continued)

The following table provides information regarding the loan status and aging of TDR loans that are past due.


	TDR Loan Delinquencies
	March 31, 2014					December 31, 2013
(Dollars in millions)	Balance		%			Balance		%
Loans in deferment⁽¹⁾	$	997				$	913
Loans in forbearance⁽²⁾		786					740
Loans in repayment and percentage of each status:
Loans current		6,045		80.5	%		5,613		76.5	%
Loans delinquent 31-60 days⁽³⁾		413		5.5			469		6.4
Loans delinquent 61-90 days⁽³⁾		286		3.8			330		4.5
Loans delinquent greater than 90 days⁽³⁾		768		10.2			921		12.6

Total TDR loans in repayment		7,512		100	%		7,333		100	%

Total TDR loans, gross	$	9,295				$	8,986

⁽¹⁾	Deferment includes customers who have returned to school or are engaged in other permitted educational activities and are not required to make payments on the loans, e.g. residency periods for medical students or a grace period for bar exam preparation.

⁽²⁾	Loans for customers 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.

The following table provides the amount of modified loans that resulted in a TDR in the periods presented. Additionally, the table summarizes charge-offs occurring in the TDR portfolio, as well as TDRs for which a payment default occurred in the current period within 12 months of the loan first being designated as a TDR. We define payment default as 60 days past due for this disclosure. The majority of our loans that are considered TDRs involve a temporary forbearance of payments and do not change the contractual interest rate of the loan.


	Three Months Ended March 31,
	2014						2013
(Dollars in millions)	Modified Loans⁽¹⁾		Charge- Offs⁽²⁾		Payment Default		Modified Loans⁽¹⁾		Charge- Offs⁽²⁾		Payment Default
Private Education Loans — Traditional	$	466	$	100	$	119	$	545	$	97	$	216
Private Education Loans — Non-Traditional		57		34		29		90		34		57

Total	$	523	$	134	$	148	$	635	$	131	$	273

⁽¹⁾	Represents period ending balance of loans that have been modified during the period and resulted in a TDR.

⁽²⁾	Represents loans that charged off that were classified as TDRs.

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3.	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
March 31, 2014
Private Education Loans — Traditional	$	939	$	29	$	41
Private Education Loans — Non-Traditional		85		11		18

Total	$	1,024	$	40	$	59

December 31, 2013
Private Education Loans — Traditional	$	926	$	35	$	46
Private Education Loans — Non-Traditional		97		13		20

Total	$	1,023	$	48	$	66

4.	Borrowings

The following table summarizes our borrowings.


	March 31, 2014						December 31, 2013
(Dollars in millions)	Short Term		Long Term		Total		Short Term		Long Term		Total
Unsecured borrowings:
Senior unsecured debt	$	1,046	$	16,836	$	17,882	$	2,213	$	16,056	$	18,269
Bank deposits		5,964		2,755		8,719		6,133		2,807		8,940
Other⁽¹⁾		684		—		684		691		—		691

Total unsecured borrowings		7,694		19,591		27,285		9,037		18,863		27,900

Secured borrowings:
FFELP Loan securitizations		—		90,608		90,608		—		90,756		90,756
Private Education Loan securitizations		—		18,861		18,861		—		18,835		18,835
FFELP Loans — other facilities		3,919		4,400		8,319		4,715		5,311		10,026
Private Education Loans — other facilities		—		597		597		—		843		843

Total secured borrowings		3,919		114,466		118,385		4,715		115,745		120,460

Total before hedge accounting adjustments		11,613		134,057		145,670		13,752		134,608		148,360
Hedge accounting adjustments		13		2,120		2,133		43		2,040		2,083

Total	$	11,626	$	136,177	$	147,803	$	13,795	$	136,648	$	150,443

⁽¹⁾	“Other” primarily consists of the obligation to return cash collateral held related to derivative exposures.

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4.	Borrowings (Continued)

Variable Interest Entities

We consolidate the following financing VIEs as of March 31, 2014 and December 31, 2013, as we are the primary beneficiary. As a result, these VIEs are accounted for as secured borrowings.


	March 31, 2014
	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:
FFELP Loan securitizations	$	—	$	90,608	$	90,608	$	91,299	$	3,055	$	700	$	95,054
Private Education Loan securitizations		—		18,861		18,861		23,880		390		428		24,698
FFELP Loans — other facilities		1,694		4,137		5,831		6,081		157		73		6,311
Private Education Loans — other facilities		—		597		597		1,259		16		24		1,299

Total before hedge accounting adjustments		1,694		114,203		115,897		122,519		3,618		1,225		127,362
Hedge accounting adjustments		—		1,330		1,330		—		—		938		938

Total	$	1,694	$	115,533	$	117,227	$	122,519	$	3,618	$	2,163	$	128,300


	December 31, 2013
	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:
FFELP Loan securitizations	$	—	$	90,756	$	90,756	$	91,535	$	2,913	$	683	$	95,131
Private Education Loan securitizations		—		18,835		18,835		23,947		338		540		24,825
FFELP Loans — other facilities		3,655		3,791		7,446		7,719		128		91		7,938
Private Education Loans — other facilities		—		843		843		1,583		16		30		1,629

Total before hedge accounting adjustments		3,655		114,225		117,880		124,784		3,395		1,344		129,523
Hedge accounting adjustments		—		1,313		1,313		—		—		978		978

Total	$	3,655	$	115,538	$	119,193	$	124,784	$	3,395	$	2,322	$	130,501

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5.	Derivative Financial Instruments

Our risk management strategy and use of and accounting for derivatives have not materially changed from that discussed in our 2013 Form 10-K. Please refer to “Note 7 — Derivative Financial Instruments” in our 2013 Form 10-K for a full discussion.

Summary of Derivative Financial Statement Impact

The following tables summarize the fair values and notional amounts of all derivative instruments at March 31, 2014 and December 31, 2013, and their impact on other comprehensive income and earnings for the three months ended March 31, 2014 and 2013.

Impact of Derivatives on Consolidated Balance Sheet


		Cash Flow				Fair Value						Trading						Total
(Dollars in millions)	Hedged Risk Exposure	Mar. 31, 2014		Dec. 31, 2013		Mar. 31, 2014			Dec. 31, 2013			Mar. 31, 2014			Dec. 31, 2013			Mar. 31, 2014			Dec. 31, 2013
Fair Values⁽¹⁾
Derivative Assets:
Interest rate swaps	Interest rate	$	16	$	24	$	753		$	738		$	47		$	61		$	816		$	823
Cross-currency interest rate swaps	Foreign currency & interest rate		—		—		1,118			1,185			—			—			1,118			1,185
Other⁽²⁾	Interest rate		—		—		—			—			1			2			1			2

Total derivative assets⁽³⁾			16		24		1,871			1,923			48			63			1,935			2,010
Derivative Liabilities:
Interest rate swaps	Interest rate		—		—		(110	)		(149	)		(180	)		(215	)		(290	)		(364	)
Floor Income Contracts	Interest rate		—		—		—			—			(1,206	)		(1,384	)		(1,206	)		(1,384	)
Cross-currency interest rate swaps	Foreign currency & interest rate		—		—		(142	)		(155	)		(25	)		(31	)		(167	)		(186	)
Other⁽²⁾	Interest rate		—		—		—			—			(4	)		(23	)		(4	)		(23	)

Total derivative liabilities⁽³⁾			—		—		(252	)		(304	)		(1,415	)		(1,653	)		(1,667	)		(1,957	)

Net total derivatives		$	16	$	24	$	1,619		$	1,619		$	(1,367	)	$	(1,590	)	$	268		$	53

⁽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 and back-to-back private credit floors.

⁽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, 2014			December 31, 2013			March 31, 2014			December 31, 2013
Gross position	$	1,935		$	2,010		$	(1,667	)	$	(1,957	)
Impact of master netting agreements		(342	)		(386	)		342			386

Derivative values with impact of master netting agreements (as carried on balance sheet)		1,593			1,624			(1,325	)		(1,571	)
Cash collateral (held) pledged		(683	)		(687	)		645			777

Net position	$	910		$	937		$	(680	)	$	(794	)

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5.	Derivative Financial Instruments (Continued)

The above fair values include adjustments for counterparty credit risk both for 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, 2014 and December 31, 2013 by $87 million and $91 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, 2014 and December 31, 2013 by $82 million and $84 million, respectively.


	Cash Flow				Fair Value				Trading				Total
(Dollars in billions)	Mar. 31, 2014		Dec. 31, 2013		Mar. 31, 2014		Dec. 31, 2013		Mar. 31, 2014		Dec. 31, 2013		Mar. 31, 2014		Dec. 31, 2013
Notional Values:
Interest rate swaps	$	.7	$	.7	$	17.2	$	16.0	$	46.3	$	46.3	$	64.2	$	63.0
Floor Income Contracts		—		—		—		—		27.2		31.8		27.2		31.8
Cross-currency interest rate swaps		—		—		10.7		11.1		.4		.3		11.1		11.4
Other⁽¹⁾		—		—		—		—		3.8		3.9		3.8		3.9

Total derivatives	$	.7	$	.7	$	27.9	$	27.1	$	77.7	$	82.3	$	106.3	$	110.1

⁽¹⁾	“Other” includes embedded derivatives bifurcated from securitization debt, as well as derivatives related to our Total Return Swap Facility and back to back private credit floors.

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5.	Derivative Financial Instruments (Continued)

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)	2014			2013			2014			2013			2014			2013		2014			2013
Fair Value Hedges:
Interest rate swaps	$	53		$	(172	)	$	100		$	109		$	(53	)	$	195	$	100		$	132
Cross-currency interest rate swaps		(53	)		(556	)		22			21			7			552		(24	)		17

Total fair value derivatives		—			(728	)		122			130			(46	)		747		76			149
Cash Flow Hedges:
Interest rate swaps		—			—			(3	)		(3	)		—			—		(3	)		(3	)

Total cash flow derivatives		—			—			(3	)		(3	)		—			—		(3	)		(3	)
Trading:
Interest rate swaps		19			(19	)		12			24			—			—		31			5
Floor Income Contracts		181			189			(198	)		(213	)		—			—		(17	)		(24	)
Cross-currency interest rate swaps		7			(47	)		(1	)		20			—			—		6			(27	)
Other		19			(4	)		(1	)		—			—			—		18			(4	)

Total trading derivatives		226			119			(188	)		(169	)		—			—		38			(50	)

Total		226			(609	)		(69	)		(42	)		(46	)		747		111			96
Less: realized gains (losses) recorded in interest expense		—			—			119			127			—			—		119			127

Gains (losses) on derivative and hedging activities, net	$	226		$	(609	)	$	(188	)	$	(169	)	$	(46	)	$	747	$	(8	)	$	(31	)

⁽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.”

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5.	Derivative Financial Instruments (Continued)

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, 2014		December 31, 2013
Collateral held:
Cash (obligation to return cash collateral is recorded in short-term borrowings)⁽¹⁾	$	683	$	687
Securities at fair value — on-balance sheet securitization derivatives (not recorded in financial statements)⁽²⁾		633		629

Total collateral held	$	1,316	$	1,316

Derivative asset at fair value including accrued interest	$	1,824	$	1,878

Collateral pledged to others:
Cash (right to receive return of cash collateral is recorded in investments)	$	645	$	777

Total collateral pledged	$	645	$	777

Derivative liability at fair value including accrued interest and premium receivable	$	769	$	948

⁽¹⁾	At March 31, 2014 and December 31, 2013, $0 and $0 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 $581 million with our counterparties. Further downgrades would not result in any additional collateral requirements, except to increase the frequency of collateral calls. Two counterparties have the right to terminate the contracts based on our recent unsecured credit rating downgrades. We currently have a liability position with these derivative counterparties (including accrued interest and net of premiums receivable) of $133 million and have posted $118 million of collateral to these counterparties. If these two counterparties exercised their right to terminate, we would be required to deliver additional assets of $15 million to settle the contracts. Trust related derivatives do not contain credit contingent features related to our or the trusts’ credit ratings.

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6.	Other Assets

The following table provides the detail of our other assets.


	March 31, 2014					December 31, 2013
(Dollars in millions)	Ending Balance		% of Balance			Ending Balance		% of Balance
Accrued interest receivable, net	$	2,052		30	%	$	2,161		30	%
Derivatives at fair value		1,593		23			1,624		22
Income tax asset, net current and deferred		1,212		17			1,299		18
Accounts receivable		810		12			881		12
Benefit and insurance-related investments		480		7			477		7
Fixed assets, net		244		4			237		3
Other loans, net		96		1			101		1
Other		449		6			507		7

Total	$	6,936		100	%	$	7,287		100	%

7.	Stockholders’ Equity

The following table summarizes our common share repurchases and issuances.


	Three Months Ended March 31,
	2014		2013
Common shares repurchased⁽¹⁾		8,368,300		10,220,804
Average purchase price per share⁽²⁾	$	23.89	$	19.49
Shares repurchased related to employee stock-based compensation plans⁽³⁾		2,115,470		2,324,575
Average purchase price per share	$	23.56	$	18.11
Common shares issued⁽⁴⁾		4,238,182		4,157,795

⁽¹⁾

Common shares purchased under our share repurchase program, of which $0 million remained available as of March 31, 2014.

⁽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.

The closing price of our common stock on March 31, 2014 was $24.48.

Dividend and Share Repurchase Program

In the first-quarter 2014, we paid a common stock dividend of $0.15 per common share. Post Spin-Off we do not anticipate continuing to pay dividends on our common stock.

In the first-quarter 2014, we repurchased 8 million shares of common stock for $200 million, fully utilizing the Company’s July 2013 share repurchase program authorization. In 2013, we repurchased 27 million shares for an aggregate purchase price of $600 million.

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8.	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)	2014		2013
Numerator:
Net income attributable to SLM Corporation	$	219	$	346
Preferred stock dividends		5		5

Net income attributable to SLM Corporation common stock	$	214	$	341

Denominator:
Weighted average shares used to compute basic EPS		427		451
Effect of dilutive securities:
Dilutive effect of stock options, non-vested restricted stock, restricted stock units and Employee Stock Purchase Plan (“ESPP”)⁽¹⁾		8		7

Dilutive potential common shares⁽²⁾		8		7

Weighted average shares used to compute diluted EPS		435		458

Basic earnings (loss) per common share attributable to SLM Corporation:
Continuing operations	$	.50	$	.76
Discontinued operations		—		—

Total	$	.50	$	.76

Diluted earnings (loss) per common share attributable to SLM Corporation:
Continuing operations	$	.49	$	.74
Discontinued operations		—		—

Total	$	.49	$	.74

⁽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, 2014 and 2013, securities covering approximately 3 million and 5 million shares, respectively, were outstanding but not included in the computation of diluted earnings per share because they were anti-dilutive.

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. Please refer to “Note 12 — Fair Value Measurements” in our 2013 Form 10-K for a full discussion.

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9.	Fair Value Measurements (Continued)

During the three months ended March 31, 2014, there were no significant transfers of financial instruments between levels, or changes in our methodology or assumptions used to value our financial instruments.

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


	Fair Value Measurements on a Recurring Basis
	March 31, 2014								December 31, 2013
(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	$	—	$	129	$	—	$	129	$	—	$	102	$	—	$	102
Guaranteed investment contracts		—		—		—		—		—		—		—		—
Other		—		6		—		6		—		7		—		7

Total available-for-sale investments		—		135		—		135		—		109		—		109
Derivative instruments:⁽¹⁾
Interest rate swaps		—		784		32		816		—		785		38		823
Cross-currency interest rate swaps		—