Edgar Filing: SLM CORP

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 September 30, 2015


¨	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 September 30, 2015
Common Stock, $0.20 par value	426,108,435 shares

SLM CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS

INDEX



Part I. Financial Information
Item 1.	Financial Statements	3
Item 1.	Notes to the Financial Statements	10
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	40
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	65
Item 4.	Controls and Procedures	68
PART II. Other Information
Item 1.	Legal Proceedings	69
Item 1A.	Risk Factors	70
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	70
Item 3.	Defaults Upon Senior Securities	70
Item 4.	Mine Safety Disclosures	70
Item 5.	Other Information	70
Item 6.	Exhibits	71

SLM CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)



	September 30,			December 31,
	2015			2014
Assets
Cash and cash equivalents	$	1,281,797		$	2,359,780
Available-for-sale investments at fair value (cost of $190,249 and $167,740, respectively)	190,944			168,934
Loans held for investment (net of allowance for losses of $104,203 and $83,842, respectively)	11,909,148			9,509,786
Restricted cash and investments	25,605			4,804
Other interest-earning assets	47,604			72,479
Accrued interest receivable	634,423			469,697
Premises and equipment, net	80,224			78,470
Acquired intangible assets, net	2,115			3,225
Tax indemnification receivable	200,704			240,311
Other assets	77,980			64,757
Total assets	$	14,450,544		$	12,972,243

Liabilities
Deposits	$	10,610,879		$	10,540,555
Short-term borrowings	710,005			—
Long-term borrowings	593,687			—
Income taxes payable, net	117,531			191,499
Upromise related liabilities	283,688			293,004
Other liabilities	137,420			117,227
Total liabilities	12,453,210			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	86,075			84,961
Additional paid-in capital	1,128,494			1,090,511
Accumulated other comprehensive loss (net of tax benefit of $14,847 and $7,186, respectively)	(23,515		)	(11,393		)
Retained earnings	281,761			113,066
Total SLM Corporation stockholders' equity before treasury stock	2,037,815			1,842,145
Less: Common stock held in treasury at cost: 4 million and 1 million shares, respectively	(40,481		)	(12,187		)
Total equity	1,997,334			1,829,958
Total liabilities and equity	$	14,450,544		$	12,972,243

See accompanying notes to consolidated financial statements.

SLM CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

(Unaudited)



	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2015			2014		2015		2014
Interest income:
Loans	$	205,274		$	164,106	$	598,417	$	486,379
Investments	2,640			2,917		7,746		6,121
Cash and cash equivalents	987			1,180		2,568		3,145
Total interest income	208,901			168,203		608,731		495,645
Interest expense:
Deposits	29,110			24,177		86,961		67,842
Interest expense on short-term borrowings	1,951			—		4,719		—
Interest expense on long-term borrowings	2,398			—		2,398		—
Total interest expense	33,459			24,177		94,078		67,842
Net interest income	175,442			144,026		514,653		427,803
Less: provisions for loan losses	27,497			14,898		59,673		55,071
Net interest income after provisions for loan losses	147,945			129,128		454,980		372,732
Noninterest income:
Gains on sales of loans, net	—			85,147		76,874		120,963
(Losses) gains on derivatives and hedging activities, net	(547		)	5,401		4,347		(4,821		)
Other	10,455			5,461		29,374		28,826
Total noninterest income	9,908			96,009		110,595		144,968
Expenses:
Compensation and benefits	39,304			31,597		119,079		92,931
Other operating expenses	53,560			40,482		144,771		103,226
Total operating expenses	92,864			72,079		263,850		196,157
Acquired intangible asset amortization expense	370			1,150		1,110		4,145
Restructuring and other reorganization expenses	910			14,079		6,311		27,828
Total expenses	94,144			87,308		271,271		228,130
Income before income tax expense	63,709			137,829		294,304		289,570
Income tax expense	17,985			54,903		109,865		115,502
Net income	45,724			82,926		184,439		174,068
Less: net loss attributable to noncontrolling interest	—			—		—		(434		)
Net income attributable to SLM Corporation	45,724			82,926		184,439		174,502
Preferred stock dividends	4,913			4,850		14,606		8,078
Net income attributable to SLM Corporation common stock	$	40,811		$	78,076	$	169,833	$	166,424

Basic earnings per common share attributable to SLM Corporation	$	0.10		$	0.18	$	0.40	$	0.39
Average common shares outstanding	426,019			423,079		425,384		424,187
Diluted earnings per common share attributable to SLM Corporation	$	0.09		$	0.18	$	0.39	$	0.38
Average common and common equivalent shares outstanding	432,547			431,604		432,531		432,324

See accompanying notes to consolidated financial statements.

SLM CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2015			2014			2015			2014
Net income	$	45,724		$	82,926		$	184,439		$	174,068
Other comprehensive income (loss):
Unrealized gains (losses) on investments	2,008			(525		)	(499		)	3,629
Unrealized losses on cash flow hedges	(21,751		)	(1,883		)	(19,284		)	(1,883		)
Total unrealized (losses) gains	(19,743		)	(2,408		)	(19,783		)	1,746
Income tax benefit (expense)	7,676			921			7,661			(574		)
Other comprehensive (loss) income, net of tax benefit (expense)	(12,067		)	(1,487		)	(12,122		)	1,172
Comprehensive income	33,657			81,439			172,317			175,240
Less: comprehensive loss attributable to noncontrolling interest	—			—			—			(434		)
Total comprehensive income attributable to SLM Corporation	$	33,657		$	81,439		$	172,317		$	175,674

See accompanying notes to consolidated financial statements.

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			—			106,329			—			174,502			(434		)	174,068
Other comprehensive income, net of tax	—	—	—		—		—		—		—		—			1,172			—			—			1,172			—			1,172
Total comprehensive income (loss)	—	—	—		—		—		—		—		—			—			—			—			175,674			(434		)	175,240
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 ($.87 per share)	—	—	—		—		—		—		—		—			—			(4,792		)	—			(4,792		)	—			(4,792		)
Preferred Stock, series B ($.49 per share)	—	—	—		—		—		—		—		—			—			(3,286		)	—			(3,286		)	—			(3,286		)
Dividend equivalent units related to employee stock-based compensation plans	—	—	—		—		—		—		41		—			—			(41		)				—			—			—
Issuance of common shares	—	1,089,716	—		1,089,716		—		219		4,391		—			—			—			—			4,610			—			4,610
Stock-based compensation expense	—	—	—		—		—		—		11,550		—			—			—			—			11,550			—			11,550
Shares repurchased related to employee stock-based compensation plans	—	—	(715,393	)	(715,393	)	—		—		—		—			—			—			(6,208		)	(6,208		)	—			(6,208		)
Balance at September 30, 2014	7,300,000	423,880,036	(715,393	)	423,164,643		$	565,000	$	84,777	$	1,078,501	$	—		$	(1,852	)	$	98,210		$	(6,208	)	$	1,818,428		$	—		$	1,818,428

See accompanying notes to consolidated financial statements.

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	—	—	—		—		—		—		—		—			184,439			—			184,439
Other comprehensive loss, net of tax	—	—	—		—		—		—		—		(12,122		)	—			—			(12,122		)
Total comprehensive income	—	—	—		—		—		—		—		—			—			—			172,317
Cash dividends:
Preferred Stock, series A ($.87 per share)	—	—	—		—		—		—		—		—			(8,625		)	—			(8,625		)
Preferred Stock, series B ($.51 per share)	—	—	—		—		—		—		—		—			(5,981		)	—			(5,981		)
Dividend equivalent units related to employee stock-based compensation plans	—	—	—		—		—		—		1,138		—			(1,138		)	—			—
Issuance of common shares	—	5,569,853			5,569,853		—		1,114		14,329		—			—			—			15,443
Tax benefit related to employee stock-based compensation	—	—	—		—		—		—		6,093		—			—			—			6,093
Stock-based compensation expense	—	—	—		—		—		—		16,423		—			—			—			16,423
Shares repurchased related to employee stock-based compensation plans	—	—	(2,900,266	)	(2,900,266	)	—		—		—		—			—			(28,294		)	(28,294		)
Balance at September 30, 2015	7,300,000	430,373,978	(4,265,543	)	426,108,435		$	565,000	$	86,075	$	1,128,494	$	(23,515	)	$	281,761		$	(40,481	)	$	1,997,334

See accompanying notes to consolidated financial statements.

SLM CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



	Nine Months Ended
	September
	2015			2014
Operating activities
Net income	$	184,439		$	174,068
Adjustments to reconcile net income to net cash used in operating activities:
Provisions for loan losses	59,673			55,071
Income tax expense	109,865			115,502
Amortization of brokered deposit placement fee	8,006			7,548
Amortization of asset-backed commercial paper upfront fee	1,790			—
Amortization of deferred loan origination costs and fees, net	2,563			1,446
Net accretion of discount on borrowings	108			—
Net accretion of underwriter fees on borrowings	108			—
Net amortization of discount on investments	1,332			433
Depreciation of premises and equipment	5,427			4,289
Amortization of acquired intangibles	1,110			2,783
Stock-based compensation expense	16,423			20,127
Unrealized (gains)/losses on derivative and hedging activities, net	(1,985		)	1,307
Gains on sale of loans, net	(76,874		)	(120,963		)
Changes in operating assets and liabilities:
Net decrease in loans held for sale	55			6,448
Origination of loans held for sale	(55		)	(6,448		)
Increase in accrued interest receivable	(316,263		)	(220,273		)
Increase in restricted cash and investments - other	(2,596		)	(1,503		)
Decrease (increase) in other interest-earning assets	24,875			(46,333		)
Decrease in tax indemnification receivable	39,607			29,816
Increase in other assets	(18,022		)	(18,918		)
Decrease in income tax payable, net	(176,172		)	(294,116		)
Increase in accrued interest payable	7,227			2,639
(Decrease) increase in payable due to entity that is a subsidiary of Navient	(5,368		)	18,114
Increase in other liabilities	5,895			30,741
Total adjustments	(313,271		)	(412,290		)
Total net cash used in operating activities	(128,832		)	(238,222		)
Investing activities
Loans acquired and originated	(3,786,946		)	(3,535,740		)
Net proceeds from sales of loans held for investment	790,094			1,994,017
Proceeds from claim payments	91,000			88,251
Net decrease (increase) in loans held for investment	672,665			476,955
Increase in restricted cash and investments - variable interest entities	(18,205		)	—
Purchases of available-for-sale securities	(50,062		)	(55,928		)
Proceeds from sales and maturities of available-for-sale securities	26,222			7,337
Total net cash used in investing activities	(2,275,232		)	(1,025,108		)
Financing activities
Brokered deposit placement fee	(477		)	(5,533		)
Net increase (decrease) in certificates of deposit	161,096			(614,953		)
Net (decrease) increase in other deposits	(129,412		)	804,874
Borrowings collateralized by loans in securitization trusts - issued	620,681			—
Borrowings collateralized by loans in securitization trusts - repaid	(27,195		)	—
Borrowings under ABCP facility	713,746			—



Repayment of borrowings under ABCP facility	(3,741		)	—
Fees paid on ABCP facility	(104		)	—
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	—			7,448
Excess tax benefit from the exercise of stock-based awards	6,093			—
Preferred stock dividends paid	(14,606		)	(8,078		)
Net cash provided by financing activities	1,326,081			650,843
Net decrease in cash and cash equivalents	(1,077,983		)	(612,487		)
Cash and cash equivalents at beginning of period	2,359,780			2,182,865
Cash and cash equivalents at end of period	$	1,281,797		$	1,570,378
Cash disbursements made for:
Interest	$	79,917		$	64,987
Income taxes paid	$	171,114		$	294,116

See accompanying notes to consolidated financial statements.

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 nine months ended September 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.

Restricted Cash and Investments

Restricted cash and investments primarily includes amounts held in student loan securitization trusts and other secured borrowings. This cash must be used to make payments related to trust obligations. Amounts on deposit in these accounts are primarily the result of timing differences between when principal and interest is collected on the trust assets and when principal and interest is paid on trust liabilities.

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 January 1, 2016, with early adoption permitted during an interim period in fiscal year 2015. In the third quarter of 2015, we elected to early adopt the new accounting guidance retrospectively to July 1, 2015. The early adoption of this standard had no impact on our consolidated financial statements.

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 September 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:



	September 30,			December 31,
	2015			2014
Private Education Loans	$	10,840,261		$	8,311,376
Deferred origination costs	26,283			13,845
Allowance for loan losses	(100,033		)	(78,574		)
Total Private Education Loans, net	10,766,511			8,246,647

FFELP Loans	1,143,595			1,264,807
Unamortized acquisition costs, net	3,212			3,600
Allowance for loan losses	(4,170		)	(5,268		)
Total FFELP Loans, net	1,142,637			1,263,139

Loans held for investment, net	$	11,909,148		$	9,509,786

The estimated weighted average life of education loans in our portfolio was approximately 6.3 years and 6.2 years at September 30, 2015 and December 31, 2014, respectively.

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 of education loans in our portfolio are summarized as follows:



	Three Months Ended								Nine Months Ended
	September 30,								September 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	$	9,869,025	7.87	%	$	7,407,774	8.20	%	$	9,563,290	7.96	%	$	7,394,985	8.19	%
FFELP Loans	1,161,288		3.27		1,339,748		3.23		1,196,491		3.22		1,373,945		3.25
Total portfolio	$	11,030,313			$	8,747,522			$	10,759,781			$	8,768,930

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 September 30, 2015
	FFELP Loans			Private Education Loans			Total
Allowance for Loan Losses
Beginning balance	$	4,556		$	87,310		$	91,866
Total provision	143			27,354			27,497
Net charge-offs:
Charge-offs	(529		)	(14,121		)	(14,650		)
Recoveries	—			1,361			1,361
Net charge-offs	(529		)	(12,760		)	(13,289		)
Loan sales⁽¹⁾	—			(1,871		)	(1,871		)
Ending Balance	$	4,170		$	100,033		$	104,203
Allowance:
Ending balance: individually evaluated for impairment	$	—		$	43,001		$	43,001
Ending balance: collectively evaluated for impairment	$	4,170		$	57,032		$	61,202
Loans:
Ending balance: individually evaluated for impairment	$	—		$	231,286		$	231,286
Ending balance: collectively evaluated for impairment	$	1,143,595		$	10,608,975		$	11,752,570
Net charge-offs as a percentage of average loans in repayment (annualized)⁽²⁾	0.25		%	0.83		%
Allowance as a percentage of the ending total loan balance	0.36		%	0.92		%
Allowance as a percentage of the ending loans in repayment⁽²⁾	0.50		%	1.50		%
Allowance coverage of net charge-offs (annualized)	1.97			1.96
Ending total loans, gross	$	1,143,595		$	10,840,261
Average loans in repayment⁽²⁾	$	839,090		$	6,118,678
Ending loans in repayment⁽²⁾	$	836,585		$	6,657,228

____________

⁽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.

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 September 30, 2014
	FFELP Loans			Private Education Loans			Total
Allowance for Loan Losses
Beginning balance	$	6,212		$	54,315		$	60,527
Total provision	291			14,607			14,898
Net charge-offs:
Charge-offs	(761		)	(4,378		)	(5,139		)
Recoveries	—			—			—
Net charge-offs	(761		)	(4,378		)	(5,139		)
Loan sales⁽¹⁾	—			(4,571		)	(4,571		)
Ending Balance	$	5,742		$	59,973		$	65,715
Allowance:
Ending balance: individually evaluated for impairment	$	—		$	2,966		$	2,966
Ending balance: collectively evaluated for impairment	$	5,742		$	57,007		$	62,749
Loans:
Ending balance: individually evaluated for impairment	$	—		$	13,115		$	13,115
Ending balance: collectively evaluated for impairment	$	1,317,963		$	7,816,305		$	9,134,268
Net charge-offs as a percentage of average loans in repayment (annualized)⁽²⁾	0.32		%	0.39		%
Allowance as a percentage of the ending total loan balance	0.44		%	0.77		%
Allowance as a percentage of the ending loans in repayment⁽²⁾	0.61		%	1.31		%
Allowance coverage of net charge-offs (annualized)	1.89			3.42
Ending total loans, gross	$	1,317,963		$	7,829,420
Average loans in repayment⁽²⁾	$	953,620		$	4,453,775
Ending loans in repayment⁽²⁾	$	945,230		$	4,575,143

____________

⁽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.

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)



3.	Allowance for Loan Losses (Continued)



	Allowance for Loan Losses
	Nine Months Ended September 30, 2015
	FFELP Loans			Private Education Loans			Total
Allowance for Loan Losses
Beginning balance	$	5,268		$	78,574		$	83,842
Total provision	1,044			58,629			59,673
Net charge-offs:
Charge-offs	(2,142		)	(36,127		)	(38,269		)
Recoveries	—			4,529			4,529
Net charge-offs	(2,142		)	(31,598		)	(33,740		)
Loan sales⁽¹⁾	—			(5,572		)	(5,572		)
Ending Balance	$	4,170		$	100,033		$	104,203
Allowance:
Ending balance: individually evaluated for impairment	$	—		$	43,001		$	43,001
Ending balance: collectively evaluated for impairment	$	4,170		$	57,032		$	61,202
Loans:
Ending balance: individually evaluated for impairment	$	—		$	231,286		$	231,286
Ending balance: collectively evaluated for impairment	$	1,143,595		$	10,608,975		$	11,752,570
Net charge-offs as a percentage of average loans in repayment (annualized)⁽²⁾	0.33		%	0.72		%
Allowance as a percentage of the ending total loan balance	0.36		%	0.92		%
Allowance as a percentage of the ending loans in repayment⁽²⁾	0.50		%	1.50		%
Allowance coverage of net charge-offs (annualized)	1.46			2.37
Ending total loans, gross	$	1,143,595		$	10,840,261
Average loans in repayment⁽²⁾	$	868,649		$	5,848,345
Ending loans in repayment⁽²⁾	$	836,585		$	6,657,228

____________

⁽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.

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)



3.	Allowance for Loan Losses (Continued)



	Allowance for Loan Losses
	Nine Months Ended September 30, 2014
	FFELP Loans			Private Education Loans			Total
Allowance for Loan Losses
Beginning balance	$	6,318		$	61,763		$	68,081
Total provision	1,482			53,589			55,071
Charge-offs	(2,058		)	(4,378		)	(6,436		)
Loan sales⁽¹⁾	—			(51,001		)	(51,001		)
Ending Balance	$	5,742		$	59,973		$	65,715
Allowance:
Ending balance: individually evaluated for impairment	$	—		$	2,966		$	2,966
Ending balance: collectively evaluated for impairment	$	5,742		$	57,007		$	62,749
Loans:
Ending balance: individually evaluated for impairment	$	—		$	13,115		$	13,115
Ending balance: collectively evaluated for impairment	$	1,317,963		$	7,816,305		$	9,134,268
Charge-offs as a percentage of average loans in repayment (annualized)⁽²⁾	0.28		%	0.13		%
Allowance as a percentage of the ending total loan balance	0.44		%	0.77		%
Allowance as a percentage of the ending loans in repayment⁽²⁾	0.61		%	1.31		%
Allowance coverage of charge-offs (annualized)	2.09			10.27
Ending total loans, gross	$	1,317,963		$	7,829,420
Average loans in repayment⁽²⁾	$	980,733		$	4,408,852
Ending loans in repayment⁽³⁾	$	945,230		$	4,575,143

____________

⁽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.

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 (where we conduct individual assessments of impairment). We modify the terms of loans for certain borrowers when we believe such modifications may increase the ability and willingness of a borrower to make payments and thus increase the ultimate overall amount collected on a loan. These modifications generally take the form of a forbearance, a temporary interest rate reduction or an extended repayment plan. In the first nine months after a loan enters full principal and interest repayment, the loan may be in forbearance for up to six months without it being classified as a TDR. Once the initial nine-month period described above is over, however, any loan that receives more than three months of forbearance in a twenty-four month period is classified as a TDR. Also, a loan becomes a TDR when it is modified to reduce the interest rate on the loan (regardless of when such modification occurs and/or whether such interest rate reduction is temporary). 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. Approximately 22 percent and 10 percent of the loans granted forbearance as of September 30, 2015 and December 31, 2014, respectively, have been classified as TDRs due to their forbearance status.

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 $251 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 (which would include life-of-loan default and recovery assumptions) discounted at the loan's original effective interest rate.

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 perspective 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 September 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

September 30, 2015
TDR Loans	$	234,360	$	231,286	$	43,001

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
	September 30, 2015				September 30, 2014
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized

TDR Loans	$	210,039	$	4,198	$	8,740	$	129

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)



3.	Allowance for Loan Losses (Continued)



	Nine Months Ended				Nine Months Ended
	September 30, 2015				September 30, 2014
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized

TDR Loans	$	150,240	$	9,314	$	3,958	$	160

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



	September 30,				December 31,
	2015				2014
	Balance		%		Balance		%
TDR loans in in-school/grace/deferment⁽¹⁾	$	4,940			$	2,915
TDR loans in forbearance⁽²⁾	50,878				18,620
TDR loans in repayment and percentage of each status:
Loans current	154,984		88.3	%	34,554		91.2	%
Loans delinquent 31-60 days⁽³⁾	11,042		6.3		1,953		5.2
Loans delinquent 61-90 days⁽³⁾	6,336		3.6		983		2.6
Loans delinquent greater than 90 days⁽³⁾	3,106		1.8		377		1.0
Total TDR loans in repayment	175,468		100.0	%	37,867		100.0	%
Total TDR loans, gross	$	231,286			$	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.

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 became TDRs in the periods presented. Additionally, for the periods presented, the table summarizes charge-offs occurring in the TDR portfolio, as well as TDRs for which a payment default occurred in the relevant period presented 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
	September 30, 2015						September 30, 2014
	Modified Loans⁽¹⁾		Charge-offs		Payment- Default		Modified Loans⁽¹⁾		Charge-offs		Payment- Default

TDR Loans	$	49,975	$	3,456	$	16,719	$	7,840	$	87	$	252



	Nine Months Ended						Nine Months Ended
	September 30, 2015						September 30, 2014
	Modified Loans⁽¹⁾		Charge-offs		Payment- Default		Modified Loans⁽¹⁾		Charge-offs	Payment- Default

TDR Loans	$	189,066	$	5,845	$	29,895	$	14,880