SLM-2Q_2015_10-Q



 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q
 
(Mark One)
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2015
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) 451-0200
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer
  þ
 
Accelerated filer
  ¨ 
 
 
 
 
 
Non-accelerated filer
  ¨ 
(Do not check if a smaller reporting company)
Smaller reporting company
  ¨ 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ    No  ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ¨ No þ 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
 
Class
 
Outstanding at June 30, 2015
Common Stock, $0.20 par value
425,882,829 shares
 
 






SLM CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS
INDEX
 

Part I. Financial Information
 
 

Item 1.
Financial Statements
 
2

Item 1.
Notes to the Financial Statements
 
9

Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
36

Item 3.
Quantitative and Qualitative Disclosures about Market Risk
 
58

Item 4.
Controls and Procedures
 
61

PART II. Other Information
 
 
Item 1.
Legal Proceedings
 
62

Item 1A.
Risk Factors
 
63

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
63

Item 3.
Defaults Upon Senior Securities
 
63

Item 4.
Mine Safety Disclosures
 
63

Item 5.
Other Information
 
63

Item 6.
Exhibits
 
64




1


SLM CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
 
 
 
June 30,
 
December 31,
 
 
2015
 
2014
Assets
 
 
 
 
Cash and cash equivalents
 
$
1,278,863

 
$
2,359,780

Available-for-sale investments at fair value (cost of $175,158 and $167,740, respectively)
 
173,845

 
168,934

Loans held for investment (net of allowance for losses of $91,866 and $83,842, respectively)
 
10,422,908

 
9,509,786

Other interest-earning assets
 
55,260

 
77,283

Accrued interest receivable
 
562,239

 
469,697

Premises and equipment, net
 
80,432

 
78,470

Acquired intangible assets, net
 
2,485

 
3,225

Tax indemnification receivable
 
228,910

 
240,311

Other assets
 
70,019

 
64,757

Total assets
 
$
12,874,961

 
$
12,972,243

 
 
 
 
 
Liabilities
 
 
 
 
Deposits
 
$
10,340,605

 
$
10,540,555

Income taxes payable, net
 
185,849

 
191,499

Upromise related liabilities
 
283,584

 
293,004

Other liabilities
 
102,750

 
117,227

Total liabilities
 
10,912,788

 
11,142,285

 
 
 
 
 
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
 
165,000

 
165,000

Series B: 4 million and 4 million shares issued, respectively, at stated value of $100 per share
 
400,000

 
400,000

Common stock, par value $0.20 per share, 1.125 billion shares authorized: 430 million and 425 million shares issued, respectively
 
86,003

 
84,961

Additional paid-in capital
 
1,120,923

 
1,090,511

Accumulated other comprehensive loss (net of tax benefit of $7,171 and $7,186, respectively)
 
(11,448
)
 
(11,393
)
Retained earnings
 
240,967

 
113,066

Total SLM Corporation stockholders' equity before treasury stock
 
2,001,445

 
1,842,145

Less: Common stock held in treasury at cost: 4 million and 1 million shares, respectively
 
(39,272
)
 
(12,187
)
Total equity
 
1,962,173

 
1,829,958

Total liabilities and equity
 
$
12,874,961

 
$
12,972,243


See accompanying notes to consolidated financial statements.

2


SLM CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
 
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2015
 
2014
 
2015
 
2014
Interest income:
 
 
 
 
 
 
 
 
Loans
 
$
195,287

 
$
162,238

 
$
393,143

 
$
322,273

Investments
 
2,386

 
2,236

 
5,106

 
3,204

Cash and cash equivalents
 
801

 
1,099

 
1,581

 
1,965

Total interest income
 
198,474

 
165,573

 
399,830

 
327,442

Interest expense:
 
 
 
 
 
 
 
 
Deposits
 
29,482

 
21,034

 
59,052

 
43,624

Other interest expense
 
735

 
—

 
1,567

 
41

Total interest expense
 
30,217

 
21,034

 
60,619

 
43,665

Net interest income
 
168,257

 
144,539

 
339,211

 
283,777

Less: provisions for loan losses
 
15,558

 
1,014

 
32,176

 
40,173

Net interest income after provisions for loan losses
 
152,699

 
143,525

 
307,035

 
243,604

Noninterest income:
 
 
 
 
 
 
 
 
Gains on sales of loans, net
 
76,874

 
1,928

 
76,874

 
35,816

Gains (losses) on derivatives and hedging activities, net
 
1,602

 
(9,458
)
 
4,894

 
(10,222
)
Other
 
10,912

 
15,229

 
18,919

 
23,365

Total noninterest income
 
89,388

 
7,699

 
100,687

 
48,959

Expenses:
 
 
 
 
 
 
 
 
Compensation and benefits
 
38,572

 
31,667

 
79,775

 
61,334

Other operating expenses
 
51,227

 
28,812

 
91,211

 
62,744

Total operating expenses
 
89,799

 
60,479

 
170,986

 
124,078

Acquired intangible asset amortization expense
 
370

 
1,156

 
740

 
2,995

Restructuring and other reorganization expenses
 
744

 
13,520

 
5,401

 
13,749

Total expenses
 
90,913

 
75,155

 
177,127

 
140,822

Income before income tax expense
 
151,174

 
76,069

 
230,595

 
151,741

Income tax expense
 
60,158

 
31,941

 
91,880

 
60,599

Net income
 
91,016

 
44,128

 
138,715

 
91,142

Less: net loss attributable to noncontrolling interest
 
—

 
—

 
—

 
(434
)
Net income attributable to SLM Corporation
 
91,016

 
44,128

 
138,715

 
91,576

Preferred stock dividends
 
4,870

 
3,228

 
9,693

 
3,228

Net income attributable to SLM Corporation common stock
 
$
86,146

 
$
40,900

 
$
129,022

 
$
88,348

 
 
 
 
 
 
 
 
 
Basic earnings per common share attributable to SLM Corporation
 
$
0.20

 
$
0.10

 
$
0.30

 
$
0.21

Average common shares outstanding
 
425,688

 
422,805

 
425,061

 
424,751

Diluted earnings per common share attributable to SLM Corporation
 
$
0.20

 
$
0.09

 
$
0.30

 
$
0.20

Average common and common equivalent shares outstanding
 
432,742

 
430,750

 
432,523

 
432,689



See accompanying notes to consolidated financial statements.

3


SLM CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
 
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2015
 
2014
 
2015
 
2014
Net income
 
$
91,016

 
$
44,128

 
$
138,715

 
$
91,142

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Unrealized gains (losses) on investments
 
(3,180
)
 
2,749

 
(2,507
)
 
4,155

Unrealized gains on cash flow hedges
 
18,156

 
—

 
2,467

 
—

Total unrealized gains (losses)
 
14,976

 
2,749

 
(40
)
 
4,155

Income tax (expense) benefit
 
(5,840
)
 
(962
)
 
(15
)
 
(1,496
)
Other comprehensive income (loss), net of tax benefit (expense)
 
9,136

 
1,787

 
(55
)
 
2,659

Comprehensive income
 
100,152

 
45,915

 
138,660

 
93,801

Less: comprehensive loss attributable to noncontrolling interest
 
—

 
—

 
—

 
(434
)
Total comprehensive income attributable to SLM Corporation
 
$
100,152

 
$
45,915

 
$
138,660

 
$
94,235


















See accompanying notes to consolidated financial statements.

4


SLM CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands, except share and per share amounts)
(Unaudited)
 
 
 
 
Common Stock Shares
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred Stock Shares
 
Issued
 
Treasury
 
Outstanding
 
Preferred Stock
 
Common Stock
 
Additional Paid-In Capital
 
Navient's Subsidiary Investment
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Retained Earnings
 
Treasury Stock
 
Total SLM Corporation Equity
 
Non-controlling interest
 
Total Equity
Balance at December 31, 2013
 
—

 
—

 
—

 
—

 
$
—

 
$
—

 
$
—

 
$
1,164,495

 
$
(3,024
)
 
$
—

 
$
—

 
$
1,161,471

 
$
4,672

 
$
1,166,143

Net income (loss)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
68,173

 
—

 
23,403

 
—

 
91,576

 
(434
)
 
91,142

Other comprehensive income, net of tax
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
2,659

 
—

 
—

 
2,659

 
—

 
2,659

Total comprehensive income (loss)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
94,235

 
(434
)
 
93,801

Net transfers from affiliate
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
479,409

 
—

 
—

 
—

 
479,409

 
—

 
479,409

Separation adjustments related to Spin-Off of Navient Corporation
 
7,300,000

 
422,790,320

 
—

 
422,790,320

 
565,000

 
84,558

 
1,062,519

 
(1,712,077
)
 
—

 
—

 
—

 
—

 
—

 
—

Sale of non-controlling interest
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(4,238
)
 
(4,238
)
Cash dividends:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred Stock, series A ($.87 per share)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(1,917
)
 
—

 
(1,917
)
 
—

 
(1,917
)
Preferred Stock, series B ($.49 per share)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(1,311
)
 
—

 
(1,311
)
 
—

 
(1,311
)
Dividend equivalent units related to employee stock-based compensation plans
 
—

 
—

 
—

 
—

 
—

 
—

 
8

 
—

 
—

 
(8
)
 
 
 
—

 
—

 
—

Issuance of common shares
 
—

 
504,929

 
—

 
504,929

 
—

 
101

 
2,344

 
—

 
—

 
—

 
—

 
2,445

 
—

 
2,445

Stock-based compensation expense
 
—

 
—

 
—

 
—

 
—

 
—

 
7,045

 
—

 
—

 
—

 
—

 
7,045

 
—

 
7,045

Shares repurchased related to employee stock-based compensation plans
 
—

 
—

 
(358,771
)
 
(358,771
)
 
—

 
—

 
—

 
—

 
—

 
—

 
(3,113
)
 
(3,113
)
 
—

 
(3,113
)
Balance at June 30, 2014
 
7,300,000

 
423,295,249

 
(358,771
)
 
422,936,478

 
$
565,000

 
$
84,659

 
$
1,071,916

 
$
—

 
$
(365
)
 
$
20,167

 
$
(3,113
)
 
$
1,738,264

 
$
—

 
$
1,738,264

See accompanying notes to consolidated financial statements.

5



SLM CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands, except share and per share amounts)
(Unaudited)






 
 
 
 
 
Common Stock Shares
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred Stock Shares
 
Issued
 
Treasury
 
Outstanding
 
Preferred Stock
 
Common Stock
 
Additional Paid-In Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Retained Earnings
 
Treasury Stock
 
Total SLM Corporation Equity
Balance at December 31, 2014
 
7,300,000

 
424,804,125

 
(1,365,277
)
 
423,438,848

 
$
565,000

 
$
84,961

 
$
1,090,511

 
$
(11,393
)
 
$
113,066

 
$
(12,187
)
 
$
1,829,958

Net income
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
138,715

 
—

 
138,715

Other comprehensive loss, net of tax
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(55
)
 
—

 
—

 
(55
)
Total comprehensive income
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
138,660

Cash dividends:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred Stock, series A ($.87 per share)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(5,750
)
 
—

 
(5,750
)
Preferred Stock, series B ($.50 per share)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(3,943
)
 
—

 
(3,943
)
Dividend equivalent units related to employee stock-based compensation plans
 
—

 
—

 
—

 
—

 
—

 
—

 
1,121

 
—

 
(1,121
)
 
—

 
—

Issuance of common shares
 
—

 
5,208,074

 

 
5,208,074

 
—

 
1,042

 
12,307

 
—

 
—

 
—

 
13,349

Tax benefit related to employee stock-based compensation
 
—

 
—

 
—

 
—

 
—

 
—

 
5,774

 
—

 
—

 
—

 
5,774

Stock-based compensation expense
 
—

 
—

 
—

 
—

 
—

 
—

 
11,210

 
—

 
—

 
—

 
11,210

Shares repurchased related to employee stock-based compensation plans
 
—

 
—

 
(2,764,093
)
 
(2,764,093
)
 
—

 
—

 
—

 
—

 
—

 
(27,085
)
 
(27,085
)
Balance at June 30, 2015
 
7,300,000

 
430,012,199

 
(4,129,370
)
 
425,882,829

 
$
565,000

 
$
86,003

 
$
1,120,923

 
$
(11,448
)
 
$
240,967

 
$
(39,272
)
 
$
1,962,173






See accompanying notes to consolidated financial statements.




6


SLM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)


 
 
Six Months Ended
 
 
June, 30
 
 
2015
 
2014
Operating activities
 
 
 
 
Net income
 
$
138,715

 
$
91,142

Adjustments to reconcile net income to net cash used in operating activities:
 
 
 
 
Provisions for loan losses
 
32,176

 
40,173

Income tax expense
 
91,880

 
60,599

Amortization of brokered deposit placement fee
 
5,352

 
5,222

Amortization of asset-backed commercial paper upfront fee
 
1,202

 
—

Amortization of deferred loan origination costs and fees, net
 
1,558

 
847

Net amortization of discount on investments
 
883

 
236

Depreciation of premises and equipment
 
3,436

 
2,598

Amortization of acquired intangibles
 
740

 
2,275

Stock-based compensation expense
 
11,210

 
8,468

Unrealized (gains)/losses on derivative and hedging activities, net
 
(3,219
)
 
8,025

Gains on sale of loans, net
 
(76,874
)
 
(35,816
)
Changes in operating assets and liabilities:
 
 
 
 
Net decrease in loans held for sale
 
55

 
6,183

Origination of loans held for sale
 
(55
)
 
(6,183
)
Increase in accrued interest receivable
 
(191,011
)
 
(175,919
)
Decrease (increase) in other interest-earning assets
 
22,023

 
(41,062
)
Decrease in tax indemnification receivable
 
11,401

 
—

(Increase) in other assets
 
(25,214
)
 
(19,182
)
Decrease in income tax payable, net
 
(97,545
)
 
(199,782
)
Decrease in accrued interest payable
 
(352
)
 
(2,931
)
(Decrease) increase in payable due to entity that is a subsidiary of Navient
 
(6,542
)
 
11,109

(Decrease) increase in other liabilities
 
(3,707
)
 
12,140

Total adjustments
 
(222,603
)
 
(323,000
)
Total net cash used in operating activities
 
(83,888
)
 
(231,858
)
Investing activities
 
 
 
 
Loans acquired and originated
 
(2,070,373
)
 
(1,921,390
)
Net proceeds from sales of loans held for investment
 
785,481

 
755,746

Proceeds from claim payments
 
67,769

 
91,089

Net decrease in loans held for investment
 
445,610

 
285,496

Purchases of available-for-sale securities
 
(26,237
)
 
(47,087
)
Proceeds from sales and maturities of available-for-sale securities
 
17,936

 
3,712

Total net cash used in investing activities
 
(779,814
)
 
(832,434
)
Financing activities
 
 
 
 
Asset-backed commercial paper upfront placement fee
 
(104
)
 
—

Net decrease in certificates of deposit
 
(140,693
)
 
(836,822
)
Net (decrease) increase in other deposits
 
(72,499
)
 
763,160

Net decrease in deposits with entity that is a subsidiary of Navient
 
—

 
(5,633
)
Special cash contribution from Navient
 
—

 
472,718

Net capital contributions from entity that is a subsidiary of Navient
 
—

 
15,408

Excess tax benefit from the exercise of stock-based awards
 
5,774

 
—

Preferred stock dividends paid
 
(9,693
)
 
(3,228
)
Net cash (used in) provided by financing activities
 
(217,215
)
 
405,603

Net decrease in cash and cash equivalents
 
(1,080,917
)
 
(658,689
)

7


Cash and cash equivalents at beginning of period
 
2,359,780

 
2,182,865

Cash and cash equivalents at end of period
 
$
1,278,863

 
$
1,524,176

Cash disbursements made for:
 
 
 
 
Interest
 
$
52,789

 
$
42,819

Income taxes paid
 
$
91,472

 
$
199,782

See accompanying notes to consolidated financial statements.

8

SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, unless otherwise noted)
 
 
 


1. Significant Accounting Policies

Basis of Presentation
The accompanying unaudited, consolidated financial statements of SLM Corporation (“we,” “us,” “our,” “Sallie Mae,” 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 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 after eliminating the effects of intercompany accounts and transactions. In the opinion of management, all adjustments considered necessary for a fair statement of the results for the interim periods have been included. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Operating results for the three and six months ended June 30, 2015 are not necessarily indicative of the results for the year ending December 31, 2015 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, 2014 (the “2014 Form 10-K”).
On April 30, 2014, we completed our plan to legally 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 Corporation. The separation of Navient from SLM Corporation (the “Spin-Off”) 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.
For periods before the Spin-Off, the financial statements are presented on a basis of accounting that reflects a change in reporting entity and have been adjusted for the effects of the Spin-Off. These carved-out financial statements and selected financial information represent only those operations, assets, liabilities and equity that form Sallie Mae on a stand-alone basis. Because the Spin-Off occurred on April 30, 2014, the balances before that date include the carved-out financial results.
Consolidation
The consolidated financial statements include the accounts of the Company and its majority-owned and controlled subsidiaries after eliminating the effects of intercompany accounts and transactions.
Recently Issued Accounting Pronouncements
On February 18, 2015, the FASB issued Accounting Standards Update (“ASU”) No. 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis,” which amends the current consolidation guidance. The amendments reduce the number of consolidation models through the elimination of the indefinite deferral of ASC 810 and place more emphasis on risk of loss when determining a controlling financial interest.  The standard is effective for fiscal periods beginning after December 15, 2015. We do not expect this new guidance to have a material impact to our financial results.





9


SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)

2. Loans Held for Investment
Loans Held for Investment consist of Private Education Loans and FFELP Loans.
“Private Education Loans” are education loans to students or their families that are not issued, insured or guaranteed by any state or federal government. Our Private Education Loans are made largely to bridge the gap between the cost of higher education and the amount funded through financial aid, government loans or customers’ resources. Private Education Loans bear the full credit risk of the borrower and any cosigners. We manage this risk through risk-performance underwriting strategies and the addition of qualified cosigners. Our Private Education Loans generally carry a variable interest rate indexed to LIBOR. As of June 30, 2015, 82 percent of all Private Education Loans were indexed to LIBOR. We provide incentives for customers to include a cosigner on our Private Education Loans, and the vast majority of Private Education Loans in our portfolio are cosigned. We also encourage our Private Education Loan customers to make payments while in school.
FFELP Loans are insured by the federal government as to their principal and accrued interest in the event of default, subject to a risk sharing level based on the date of loan disbursement. These insurance obligations are supported by contractual rights against the United States. For loans disbursed on or after July 1, 2006, we receive 97 percent reimbursement on all qualifying claims. For loans disbursed after October 1, 1993, and before July 1, 2006, we receive 98 percent reimbursement on all qualifying claims. For loans disbursed prior to October 1, 1993, we receive 100 percent reimbursement on all qualifying claims.
Loans held for investment are summarized as follows:
 
 
June 30,
 
December 31,
 
 
2015
 
2014
Private Education Loans
 
$
9,312,937

 
$
8,311,376

Deferred origination costs
 
19,632

 
13,845

Allowance for loan losses
 
(87,310
)
 
(78,574
)
Total Private Education Loans, net
 
9,245,259

 
8,246,647

 
 
 
 
 
FFELP Loans
 
1,178,876

 
1,264,807

Unamortized acquisition costs, net
 
3,329

 
3,600

Allowance for loan losses
 
(4,556
)
 
(5,268
)
Total FFELP Loans, net
 
1,177,649

 
1,263,139

 
 
 
 
 
Loans held for investment, net
 
$
10,422,908

 
$
9,509,786


 
The estimated weighted average life of education loans in our portfolio was approximately 6.2 years at both June 30, 2015 and December 31, 2014.

10


SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
2.
Loans Held for Investment (Continued)
 


The average balance and the respective weighted average interest rates are summarized as follows:


 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2015
 
2014
 
2015
 
2014
 
 
Average Balance
 
Weighted Average Interest Rate
 
Average Balance
 
Weighted Average Interest Rate
 
Average Balance
 
Weighted Average Interest Rate
 
Average Balance
 
Weighted Average Interest Rate
Private Education Loans
 
$
9,361,711

 
7.96
%
 
$
7,357,599

 
8.22
%
 
$
9,407,888

 
8.01
%
 
$
7,388,484

 
8.18
%
FFELP Loans
 
1,194,309

 
3.22

 
1,378,206

 
3.32

 
1,214,384

 
3.20

 
1,391,327

 
3.26

Total portfolio
 
$
10,556,020

 
 
 
$
8,735,805

 
 
 
$
10,622,272

 
 
 
$
8,779,811

 
 



11


SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)

3. Allowance for Loan Losses
Our provision for loan losses represents the periodic expense of maintaining an allowance sufficient to absorb incurred probable losses in the held-for-investment loan portfolios. The evaluation of the allowance for loan losses is inherently subjective, as it requires material estimates that may be susceptible to significant changes. We believe the allowance for loan losses is appropriate to cover probable losses incurred in the loan portfolios.

Allowance for Loan Losses Metrics

 
 
Allowance for Loan Losses
 
 
Three Months Ended June 30, 2015
 
 
FFELP Loans
 
Private Education
Loans
 
Total
Allowance for Loan Losses
 
 
 
 
 
 
Beginning balance
 
$
4,569

 
$
85,236

 
$
89,805

Total provision
 
466

 
15,092

 
15,558

Net charge-offs:
 
 
 
 
 
 
Charge-offs
 
(479
)
 
(13,278
)
 
(13,757
)
Recoveries
 
—

 
1,780

 
1,780

Net charge-offs
 
(479
)
 
(11,498
)
 
(11,977
)
Loan sales(1)
 
—

 
(1,520
)
 
(1,520
)
Ending Balance
 
$
4,556

 
$
87,310

 
$
91,866

Allowance:
 
 
 
 
 
 
Ending balance: individually evaluated for impairment
 
$
—

 
$
32,446

 
$
32,446

Ending balance: collectively evaluated for impairment
 
$
4,556

 
$
54,864

 
$
59,420

Loans:
 
 
 
 
 
 
Ending balance: individually evaluated for impairment
 
$
—

 
$
187,143

 
$
187,143

Ending balance: collectively evaluated for impairment
 
$
1,178,876

 
$
9,125,794

 
$
10,304,670

Net charge-offs as a percentage of average loans in repayment (annualized)(2)
 
0.22
%
 
0.81
%
 
 
Allowance as a percentage of the ending total loan balance
 
0.39
%
 
0.94
%
 
 
Allowance as a percentage of the ending loans in repayment(2)
 
0.54
%
 
1.54
%
 
 
Allowance coverage of net charge-offs (annualized)
 
2.38

 
1.90

 
 
Ending total loans, gross
 
$
1,178,876

 
$
9,312,937

 
 
Average loans in repayment(2)
 
$
861,453

 
$
5,712,559

 
 
Ending loans in repayment(2)
 
$
836,545

 
$
5,666,645

 
 

____________
(1) Represents fair value write-downs on loans sold.
(2) Loans in repayment include loans making interest only and fixed payments as well as loans that have entered full principal and interest repayment status.

12


SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
3.
Allowance for Loan Losses (Continued)
 


     
 
 
Allowance for Loan Losses
 
 
Three Months Ended June 30, 2014
 
 
FFELP Loans
 
Private Education
Loans
 
Total
Allowance for Loan Losses
 
 
 
 
 
 
Beginning balance
 
$
6,181

 
$
71,453

 
$
77,634

Total provision
 
685

 
329

 
1,014

Net charge-offs:
 
 
 
 
 
 
Charge-offs(1)
 
(654
)
 
—

 
(654
)
Recoveries
 
—

 
—

 
—

Net charge-offs
 
(654
)
 
—

 
(654
)
Loan sales(2)
 
—

 
(17,467
)
 
(17,467
)
Ending Balance
 
$
6,212

 
$
54,315

 
$
60,527

Allowance:
 
 
 
 
 
 
Ending balance: individually evaluated for impairment
 
$
—

 
$
1,037

 
$
1,037

Ending balance: collectively evaluated for impairment
 
$
6,212

 
$
53,278

 
$
59,490

Loans:
 
 
 
 
 
 
Ending balance: individually evaluated for impairment
 
$
—

 
$
4,508

 
$
4,508

Ending balance: collectively evaluated for impairment
 
$
1,360,107

 
$
7,478,286

 
$
8,838,393

Net charge-offs as a percentage of average loans in repayment (annualized)(3)
 
0.07
%
 
—
%
 
 
Allowance as a percentage of the ending total loan balance
 
0.46
%
 
0.73
%
 
 
Allowance as a percentage of the ending loans in repayment(3)
 
0.66
%
 
1.23
%
 
 
Allowance coverage of net charge-offs (annualized)
 
2.40

 
—

 
 
Ending total loans, gross
 
$
1,360,107

 
$
7,482,794

 
 
Average loans in repayment(3)
 
$
973,894

 
$
4,322,356

 
 
Ending loans in repayment(3)
 
$
947,972

 
$
4,425,573

 
 
____________
    
(1) Prior to the Spin-Off, Private Education Loans were sold to an entity that is now a subsidiary of Navient prior to being charged-off.
(2) Represents fair value write-downs on loans sold.
(3) Loans in repayment include loans making interest only and fixed payments as well as loans that have entered full principal and interest repayment status.




13


SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
3.
Allowance for Loan Losses (Continued)
 

 
 
Allowance for Loan Losses
 
 
Six Months Ended June 30, 2015
 
 
FFELP Loans
 
Private Education
Loans
 
Total
Allowance for Loan Losses
 
 
 
 
 
 
Beginning balance
 
$
5,268

 
$
78,574

 
$
83,842

Total provision
 
901

 
31,275

 
32,176

Net charge-offs:
 
 
 
 
 
 
Charge-offs
 
(1,613
)
 
(22,005
)
 
(23,618
)
Recoveries
 
—

 
3,168

 
3,168

Net charge-offs
 
(1,613
)
 
(18,837
)
 
(20,450
)
Loan sales(1)
 
—

 
(3,702
)
 
(3,702
)
Ending Balance
 
$
4,556

 
$
87,310

 
$
91,866

Allowance:
 
 
 
 
 
 
Ending balance: individually evaluated for impairment
 
$
—

 
$
32,446

 
$
32,446

Ending balance: collectively evaluated for impairment
 
$
4,556

 
$
54,864

 
$
59,420

Loans:
 
 
 
 
 
 
Ending balance: individually evaluated for impairment
 
$
—

 
$
187,143

 
$
187,143

Ending balance: collectively evaluated for impairment
 
$
1,178,876

 
$
9,125,794

 
$
10,304,670

Net charge-offs as a percentage of average loans in repayment (annualized)(2)
 
0.37
%
 
0.66
%
 
 
Allowance as a percentage of the ending total loan balance
 
0.39
%
 
0.94
%
 
 
Allowance as a percentage of the ending loans in repayment(2)
 
0.54
%
 
1.54
%
 
 
Allowance coverage of net charge-offs (annualized)
 
1.41

 
2.32

 
 
Ending total loans, gross
 
$
1,178,876

 
$
9,312,937

 
 
Average loans in repayment(2)
 
$
880,953

 
$
5,667,912

 
 
Ending loans in repayment(2)
 
$
836,545

 
$
5,666,645

 
 
____________
(1) Represents fair value write-downs on loans sold.
(2) Loans in repayment include loans making interest only and fixed payments as well as loans that have entered full principal and interest repayment status.

14


SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
3.
Allowance for Loan Losses (Continued)
 

 
 
Allowance for Loan Losses
 
 
Six Months Ended June 30, 2014
 
 
FFELP Loans
 
Private Education
Loans
 
Total
Allowance for Loan Losses
 
 
 
 
 
 
Beginning balance
 
$
6,318

 
$
61,763

 
$
68,081

Total provision
 
1,191

 
38,982

 
40,173

Charge-offs(1)
 
(1,297
)
 
—

 
(1,297
)
Loan sales(2)
 
—

 
(46,430
)
 
(46,430
)
Ending Balance
 
$
6,212

 
$
54,315

 
$
60,527

Allowance:
 
 
 
 
 
 
Ending balance: individually evaluated for impairment
 
$
—

 
$
1,037

 
$
1,037

Ending balance: collectively evaluated for impairment
 
$
6,212

 
$
53,278

 
$
59,490

Loans:
 
 
 
 
 
 
Ending balance: individually evaluated for impairment
 
$
—

 
$
4,508

 
$
4,508

Ending balance: collectively evaluated for impairment
 
$
1,360,107

 
$
7,478,286

 
$
8,838,393

Charge-offs as a percentage of average loans in repayment (annualized)(3)
 
0.13
%
 
—
%
 
 
Allowance as a percentage of the ending total loan balance
 
0.46
%
 
0.73
%
 
 
Allowance as a percentage of the ending loans in repayment(3)
 
0.66
%
 
1.23
%
 
 
Allowance coverage of charge-offs (annualized)
 
2.40

 
—

 
 
Ending total loans, gross
 
$
1,360,107

 
$
7,482,794

 
 
Average loans in repayment(3)
 
$
994,290

 
$
4,354,878

 
 
Ending loans in repayment(3)
 
$
947,972

 
$
4,425,573

 
 
____________
    
(1) Prior to the Spin-Off, Private Education Loans were sold to an entity that is now a subsidiary of Navient prior to being charged-off.
(2) Represents fair value write-downs on loans sold.
(3) Loans in repayment include loans making interest only and fixed payments as well as loans that have entered full principal and interest repayment status.


15


SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
3.
Allowance for Loan Losses (Continued)
 


Troubled Debt Restructurings (“TDRs”)
All of our loans are collectively assessed for impairment, except for loans classified as TDRs. Prior to the Spin-Off, we did not have TDR loans because the loans generally were sold to a now unrelated affiliate in the same month that the terms were restructured. Subsequent to May 1, 2014, we have individually assessed $187.1 million of Private Education Loans as TDRs. When these TDR loans are determined to be impaired, we provide for an allowance for losses sufficient to cover life-of-loan expected losses through an impairment calculation based on the difference between the loan's basis and the present value of expected future cash flows discounted at the loan's original effective interest rate. 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.
Within the Private Education Loan portfolio, loans greater than 90 days past due are considered to be nonperforming. FFELP Loans are at least 97 percent guaranteed as to their principal and accrued interest by the federal government in the event of default, and therefore, we do not deem FFELP Loans as nonperforming from a credit risk standpoint at any point in their life cycle prior to claim payment, and we continue to accrue interest on those loans through the date of claim.
At June 30, 2015 and December 31, 2014, all 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.
 
 
Recorded Investment
 
Unpaid Principal Balance
 
Allowance
 
 
 
 
 
 
 
June 30, 2015
 
 
 
 
 
 
TDR Loans
 
$
189,585

 
$
187,143

 
$
32,446

 
 
 
 
 
 
 
December 31, 2014
 
 
 
 
 
 
TDR Loans
 
$
60,278

 
$
59,402

 
$
9,815


The following table provides the average recorded investment and interest income recognized for our TDR loans.
 
 
Three Months Ended
 
Three Months Ended
 
 
June 30, 2015
 
June 30, 2014
 
 
Average
Recorded
Investment
 
Interest
Income
Recognized
 
Average
Recorded
Investment
 
Interest
Income
Recognized
 
 
 
 
 
 
 
 
 
TDR Loans
 
$
155,763

 
$
3,206

 
$
2,267

 
$
31


 
 
Six Months Ended
 
Six Months Ended
 
 
June 30, 2015
 
June 30, 2014
 
 
Average
Recorded
Investment
 
Interest
Income
Recognized
 
Average
Recorded
Investment
 
Interest
Income
Recognized
 
 
 
 
 
 
 
 
 
TDR Loans
 
$
121,690

 
$
5,116

 
$
1,295

 
$
31



16


SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
3.
Allowance for Loan Losses (Continued)
 

The following table provides information regarding the loan status of TDR loans and the aging of TDR loans that are past due.
 
 
June 30,
 
December 31,
 
 
2015
 
2014
 
 
Balance
 
%
 
Balance
 
%
TDR loans in in-school/grace/deferment(1)
 
$
1,761

 
 
 
$
2,915

 
 
TDR loans in forbearance(2)
 
56,008

 
 
 
18,620

 
 
TDR loans in repayment and percentage of each status:
 
 
 
 
 
 
 
 
Loans current
 
116,609

 
90.1
%
 
34,554

 
91.2
%
Loans delinquent 31-60 days(3)
 
7,561

 
5.8

 
1,953

 
5.2

Loans delinquent 61-90 days(3)
 
4,092

 
3.2

 
983

 
2.6

Loans delinquent greater than 90 days(3)
 
1,112

 
0.9

 
377

 
1.0

Total TDR loans in repayment
 
129,374

 
100.0
%
 
37,867

 
100.0
%
Total TDR loans, gross
 
$
187,143

 
 
 
$
59,402

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

    

17


SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
3.
Allowance for Loan Losses (Continued)
 

The following tables provides the amount of modified loans (which includes forbearance and reductions in interest rates) 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 and within 12 months of the loan first being designated as a TDR. We define payment default as 60 days past due for this disclosure.
 
 
Three Months Ended
 
Three Months Ended
 
 
June 30, 2015
 
June 30, 2014
 
 
Modified Loans(1)
 
Charge-offs
 
Payment-
Default
 
Modified Loans(1)
 
Charge-offs
 
Payment-
Default
 
 
 
 
 
 
 
 
 
 
 
 
 
TDR Loans
 
$
75,183

 
$
1,740

 
$
8,394

 
$
4,508

 
$
—

 
$
68


 
 
Six Months Ended
 
Six Months Ended
 
 
June 30, 2015
 
June 30, 2014
 
 
Modified Loans(1)
 
Charge-offs
 
Payment-
Default
 
Modified Loans(1)
 
Charge-offs
 
Payment-
Default
 
 
 
 
 
 
 
 
 
 
 
 
 
TDR Loans
 
$
139,091

 
$
2,388

 
$
13,177

 
$
4,508

 
$
—

 
$
68

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



18


SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, unless otherwise noted)
3.
Allowance for Loan Losses (Continued)
 


Key Credit Quality Indicators
For Private Education Loans, the key credit quality indicators are FICO scores, the existence of a cosigner, loan status and loan seasoning. The FICO scores are assessed at origination and periodically refreshed/updated through the loan's term. The following table highlights the gross principal balance of our Private Education Loan portfolio stratified by key credit quality indicators.

 
 
Private Education Loans
 
 
Credit Quality Indicators
 
 
June 30, 2015
 
December 31, 2014
Credit Quality Indicators:
 
Balance(1)
 
% of Balance
 
Balance(1)
 
% of Balance
 
 
 
 
 
 
 
 
 
Cosigners:
 
 
 
 
 
 
 
 
With cosigner
 
$
8,341,122

 
90
%
 
$
7,465,339

 
90
%
Without cosigner
 
971,815

 
10

 
846,037

 
10

Total
 
$
9,312,937

 
100
%
 
$
8,311,376

 
100