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 March 31, 2016


¨	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 March 31, 2016
Common Stock, $0.20 par value	427,915,514 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	60
Item 4.	Controls and Procedures	64
PART II. Other Information
Item 1.	Legal Proceedings	65
Item 1A.	Risk Factors	66
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	66
Item 3.	Defaults Upon Senior Securities	66
Item 4.	Mine Safety Disclosures	66
Item 5.	Other Information	66
Item 6.	Exhibits	67

SLM CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)



	March 31,			December 31,
	2016			2015
Assets
Cash and cash equivalents	$	938,480		$	2,416,219
Available-for-sale investments at fair value (cost of $201,585 and $196,402, respectively)	203,597			195,391
Loans held for investment (net of allowance for losses of $126,249 and $112,507, respectively)	13,108,425			11,630,591
Restricted cash and investments	24,612			27,980
Other interest-earning assets	58,451			54,845
Accrued interest receivable	650,813			564,496
Premises and equipment, net	81,261			81,273
Acquired intangible assets, net	1,485			1,745
Tax indemnification receivable	187,156			186,076
Other assets	70,493			55,482
Total assets	$	15,324,773		$	15,214,098

Liabilities
Deposits	$	11,543,355		$	11,487,707
Short-term borrowings	526,500			500,175
Long-term borrowings	558,513			579,101
Income taxes payable, net	142,410			166,662
Upromise related liabilities	263,899			275,384
Other liabilities	146,171			108,746
Total liabilities	13,180,848			13,117,775

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: 433.4 million and 430.7 million shares issued, respectively	86,684			86,136
Additional paid-in capital	1,142,502			1,135,860
Accumulated other comprehensive loss (net of tax benefit of $18,089 and $9,949, respectively)	(29,269		)	(16,059		)
Retained earnings	426,986			366,609
Total SLM Corporation stockholders' equity before treasury stock	2,191,903			2,137,546
Less: Common stock held in treasury at cost: 5.5 million and 4.4 million shares, respectively	(47,978		)	(41,223		)
Total equity	2,143,925			2,096,323
Total liabilities and equity	$	15,324,773		$	15,214,098

See accompanying notes to consolidated financial statements.

SLM CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

(Unaudited)



	Three Months Ended
	March 31,
	2016			2015
Interest income:
Loans	$	245,230		$	197,856
Investments	2,591			2,720
Cash and cash equivalents	1,634			780
Total interest income	249,455			201,356
Interest expense:
Deposits	34,012			29,570
Interest expense on short-term borrowings	2,163			832
Interest expense on long-term borrowings	3,415			—
Other interest expense	2			—
Total interest expense	39,592			30,402
Net interest income	209,863			170,954
Less: provisions for credit losses	32,602			16,618
Net interest income after provisions for credit losses	177,261			154,336
Non-interest income:
(Losses) gains on derivatives and hedging activities, net	(354		)	3,292
Other	21,028			8,007
Total non-interest income	20,674			11,299
Expenses:
Compensation and benefits	50,209			41,203
Other operating expenses	42,676			39,984
Total operating expenses	92,885			81,187
Acquired intangible asset amortization expense	260			370
Restructuring and other reorganization expenses	—			4,657
Total expenses	93,145			86,214
Income before income tax expense	104,790			79,421
Income tax expense	38,875			31,722
Net income attributable to SLM Corporation	65,915			47,699
Preferred stock dividends	5,139			4,823
Net income attributable to SLM Corporation common stock	$	60,776		$	42,876
Basic earnings per common share attributable to SLM Corporation	$	0.14		$	0.10
Average common shares outstanding	427,111			424,428
Diluted earnings per common share attributable to SLM Corporation	$	0.14		$	0.10
Average common and common equivalent shares outstanding	430,903			432,302

See accompanying notes to consolidated financial statements.

SLM CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)



	Three Months Ended
	March 31,
	2016			2015
Net income attributable to SLM Corporation	$	65,915		$	47,699
Other comprehensive income (loss):
Unrealized gains on investments	3,024			673
Unrealized losses on cash flow hedges	(24,374		)	(15,689		)
Total unrealized losses	(21,350		)	(15,016		)
Income tax benefit	8,140			5,825
Other comprehensive loss, net of tax benefit	(13,210		)	(9,191		)
Total comprehensive income attributable to SLM Corporation	$	52,705		$	38,508

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	—	—	—		—		—		—		—		—			47,699			—			47,699
Other comprehensive income, net of tax	—	—	—		—		—		—		—		(9,191		)	—			—			(9,191		)
Total comprehensive income (loss)	—	—	—		—		—		—		—		—			—			—			38,508
Cash dividends:
Preferred Stock, series A ($.87 per share)	—	—	—		—		—		—		—		—			(2,875		)	—			(2,875		)
Preferred Stock, series B ($.49 per share)	—	—	—		—		—		—		—		—			(1,948		)	—			(1,948		)
Dividend equivalent units related to employee stock-based compensation plans	—	—	—		—		—		—		1,118		—			(1,118		)				—
Issuance of common shares	—	3,130,839	—		3,130,839		—		626		4,050		—			—			—			4,676
Tax benefit related to employee stock-based compensation	—	—	—		—		—		—		4,596		—			—			—			4,596
Stock-based compensation expense	—	—	—		—		—		—		6,140		—			—			—			6,140
Shares repurchased related to employee stock-based compensation plans	—	—	(1,389,096	)	(1,389,096	)	—		—		—		—			—			(13,142		)	(13,142		)
Balance at March 31, 2015	7,300,000	427,934,964	(2,754,373	)	425,180,591		$	565,000	$	85,587	$	1,106,415	$	(20,584	)	$	154,824		$	(25,329	)	$	1,865,913

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, 2015	7,300,000	430,677,434	(4,374,190	)	426,303,244		$	565,000	$	86,136	$	1,135,860		$	(16,059	)	$	366,609		$	(41,223	)	$	2,096,323
Net income	—	—	—		—		—		—		—			—			65,915			—			65,915
Other comprehensive loss, net of tax	—	—	—		—		—		—		—			(13,210		)	—			—			(13,210		)
Total comprehensive income	—	—	—		—		—		—		—			—			—			—			52,705
Cash dividends:
Preferred Stock, series A ($0.87 per share)	—	—	—		—		—		—		—			—			(2,875		)	—			(2,875		)
Preferred Stock, series B ($0.56 per share)	—	—	—		—		—		—		—			—			(2,264		)	—			(2,264		)
Dividend equivalent units related to employee stock-based compensation plans	—	—	—		—		—		—		399			—			(399		)	—			—
Issuance of common shares	—	2,740,979			2,740,979		—		548		2,159			—			—			—			2,707
Tax benefit related to employee stock-based compensation	—	—	—		—		—		—		(2,132		)	—			—			—			(2,132		)
Stock-based compensation expense	—	—	—		—		—		—		6,216			—			—			—			6,216
Shares repurchased related to employee stock-based compensation plans	—	—	(1,128,709	)	(1,128,709	)	—		—		—			—			—			(6,755		)	(6,755		)
Balance at March 31, 2016	7,300,000	433,418,413	(5,502,899	)	427,915,514		$	565,000	$	86,684	$	1,142,502		$	(29,269	)	$	426,986		$	(47,978	)	$	2,143,925

See accompanying notes to consolidated financial statements.

SLM CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



	Three Months Ended
	March 31,
	2016			2015
Operating activities
Net income	$	65,915		$	47,699
Adjustments to reconcile net income to net cash used in operating activities:
Provisions for credit losses	32,602			16,618
Income tax expense	38,875			31,722
Amortization of brokered deposit placement fee	2,615			2,695
Amortization of ABCP Facility upfront fee	122			—
Amortization of deferred loan origination costs and fees, net	1,223			641
Net amortization of discount on investments	342			324
Interest income on tax indemnification receivable	(1,080		)	(1,754		)
Depreciation of premises and equipment	2,104			1,659
Amortization of acquired intangibles	260			370
Stock-based compensation expense	6,216			6,140
Unrealized (gains)/losses on derivative and hedging activities, net	832			(2,417		)
Other adjustments to net income, net	250			—
Changes in operating assets and liabilities:
Net decrease in loans held for sale	—			55
Origination of loans held for sale	—			(55		)
Increase in accrued interest receivable	(147,257		)	(121,815		)
Decrease in restricted cash and investments - other	6,778			1,046
(Increase) decrease in other interest-earning assets	(3,606		)	13,854
Decrease in tax indemnification receivable	—			14,908
Increase in other assets	(11,391		)	(2,079		)
Decrease in income tax payable, net	(54,987		)	(23,049		)
Increase in accrued interest payable	9,079			6,541
Increase (decrease) in payable due to entity that is a subsidiary of Navient	1,169			(1,655		)
Increase (decrease) in other liabilities	2,159			(10,629		)
Total adjustments	(113,695		)	(66,880		)
Total net cash used in operating activities	(47,780		)	(19,181		)
Investing activities
Loans acquired and originated	(1,806,583		)	(1,663,149		)
Net proceeds from sales of loans held for investment	3,365			6,387
Proceeds from claim payments	18,528			46,442
Net decrease (increase) in loans held for investment	332,414			243,990
Increase in restricted cash and investments - variable interest entities	(3,410		)	—
Purchases of available-for-sale securities	(12,090		)	(8,178		)
Proceeds from sales and maturities of available-for-sale securities	6,566			6,630
Total net cash used in investing activities	(1,461,210		)	(1,367,878		)
Financing activities
Brokered deposit placement fee	(2,759		)	—
Net decrease in certificates of deposit	(209,411		)	(74,457		)
Net increase (decrease) increase in other deposits	245,893			(22,415		)
Borrowings collateralized by loans in securitization trusts - repaid	(20,276		)	—
Borrowings under ABCP facility	26,325			—
Fees paid on ABCP facility	(1,250		)	—
Excess tax (expense) benefit from the exercise of stock-based awards	(2,132		)	4,596



Preferred stock dividends paid	(5,139		)	(4,823		)
Net cash provided by (used in) financing activities	31,251			(97,099		)
Net decrease in cash and cash equivalents	(1,477,739		)	(1,484,158		)
Cash and cash equivalents at beginning of period	2,416,219			2,359,780
Cash and cash equivalents at end of period	$	938,480		$	875,622
Cash disbursements made for:
Interest	$	32,766		$	25,368
Income taxes paid	$	56,077		$	17,811

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 (“Sallie Mae,” “SLM,” the “Company,” “we,” or “us”) 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 months ended March 31, 2016 are not necessarily indicative of the results for the year ending December 31, 2016 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, 2015 (the “2015 Form 10-K”).

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.

We consolidate any variable interest entity (“VIE”) where we have determined we are the primary beneficiary. The primary beneficiary is the entity which has both: (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (2) the obligation to absorb losses or receive benefits of the entity that could potentially be significant to the VIE.

Recently Issued but Not Yet Adopted Accounting Pronouncements

On February 25, 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases,” a comprehensive new lease standard which will supersede previous lease guidance. The standard requires a lessee to recognize in its balance sheet assets and liabilities related to long-term leases that were classified as operating leases under previous guidance. An asset will be recognized related to the right to use the underlying asset and a liability will be recognized related to the obligation to make lease payments over the term of the lease. The standard also requires expanded disclosures surrounding leases. The standard is effective for fiscal periods beginning after December 15, 2018, and requires modified retrospective adoption, with early adoption permitted. We are currently evaluating the impact of the adoption of this standard on our consolidated financial statements and related disclosures.

On March 30, 2016, the FASB issued ASU No. 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,” which amends the current stock compensation guidance. The amendments simplify the accounting for the taxes related to stock based compensation, including adjustments to how excess tax benefits and a company's payments for tax withholdings should be classified. The standard is effective for fiscal periods beginning after December 15, 2016, with early adoption permitted. We are currently evaluating the impact of the adoption of this standard 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. We use “Private Education Loans” to mean education loans to students or their families that are not made, insured or guaranteed by any state or federal government. Private Education Loans do not include loans insured or guaranteed under the previously existing Federal Family Education Loan Program (“FFELP”).

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 and customers’ resources. Private Education Loans bear the full credit risk of the customer. We manage this risk through risk-performance underwriting strategies and qualified cosigners. Private Education Loans generally carry a variable rate indexed to LIBOR. As of March 31, 2016, 81 percent of all of our Private Education Loans were indexed to LIBOR. We provide incentives for customers to include a cosigner on the loan, and the vast majority of loans in our portfolio are cosigned. We also encourage customers to make payments while in school.

FFELP Loans are insured 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:



	March 31,			December 31,
	2016			2015
Private Education Loans	$	12,111,870		$	10,596,437
Deferred origination costs	31,772			27,884
Allowance for loan losses	(122,620		)	(108,816		)
Total Private Education Loans, net	12,021,022			10,515,505

FFELP Loans	1,088,026			1,115,663
Unamortized acquisition costs, net	3,006			3,114
Allowance for loan losses	(3,629		)	(3,691		)
Total FFELP Loans, net	1,087,403			1,115,086

Loans held for investment, net	$	13,108,425		$	11,630,591

The estimated weighted average life of education loans in our portfolio was approximately 6.2 years at both March 31, 2016 and December 31, 2015, 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
	March 31,
	2016				2015
	Average Balance		Weighted Average Interest Rate		Average Balance		Weighted Average Interest Rate
Private Education Loans	$	11,817,708	8.03	%	$	9,454,579	8.07	%
FFELP Loans	1,103,253		3.42		1,234,682		3.19
Total portfolio	$	12,920,961			$	10,689,261

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 March 31, 2016
	FFELP Loans			Private Education Loans			Total
Allowance for Loan Losses
Beginning balance	$	3,691		$	108,816		$	112,507
Total provision	321			33,839			34,160
Net charge-offs:
Charge-offs	(383		)	(19,004		)	(19,387		)
Recoveries	—			1,044			1,044
Net charge-offs	(383		)	(17,960		)	(18,343		)
Loan sales⁽¹⁾	—			(2,075		)	(2,075		)
Ending Balance	$	3,629		$	122,620		$	126,249
Allowance:
Ending balance: individually evaluated for impairment	$	—		$	49,212		$	49,212
Ending balance: collectively evaluated for impairment	$	3,629		$	73,408		$	77,037
Loans:
Ending balance: individually evaluated for impairment	$	—		$	318,094		$	318,094
Ending balance: collectively evaluated for impairment	$	1,088,026		$	11,793,776		$	12,881,802
Net charge-offs as a percentage of average loans in repayment (annualized)⁽²⁾	0.19		%	0.95		%
Allowance as a percentage of the ending total loan balance	0.33		%	1.01		%
Allowance as a percentage of the ending loans in repayment⁽²⁾	0.45		%	1.56		%
Allowance coverage of net charge-offs (annualized)	2.37			1.71
Ending total loans, gross	$	1,088,026		$	12,111,870
Average loans in repayment⁽²⁾	$	804,690		$	7,534,234
Ending loans in repayment⁽²⁾	$	803,378		$	7,843,076

____________

⁽¹⁾ Represents fair value adjustments on loans sold.

⁽²⁾ Loans in repayment include loans on which borrowers are 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 March 31, 2015
	FFELP Loans			Private Education Loans			Total
Allowance for Loan Losses
Beginning balance	$	5,268		$	78,574		$	83,842
Total provision	435			16,183			16,618
Net charge-offs:
Charge-offs	(1,134		)	(8,727		)	(9,861		)
Recoveries	—			1,387			1,387
Net charge-offs	(1,134		)	(7,340		)	(8,474		)
Loan sales⁽¹⁾	—			(2,181		)	(2,181		)
Ending Balance	$	4,569		$	85,236		$	89,805
Allowance:
Ending balance: individually evaluated for impairment	$	—		$	20,105		$	20,105
Ending balance: collectively evaluated for impairment	$	4,569		$	65,131		$	69,700
Loans:
Ending balance: individually evaluated for impairment	$	—		$	122,120		$	122,120
Ending balance: collectively evaluated for impairment	$	1,208,977		$	9,646,641		$	10,855,618
Net charge-offs as a percentage of average loans in repayment (annualized)⁽²⁾	0.50		%	0.51		%
Allowance as a percentage of the ending total loan balance	0.38		%	0.87		%
Allowance as a percentage of the ending loans in repayment⁽²⁾	0.52		%	1.42		%
Allowance coverage of net charge-offs (annualized)	1.01			2.90
Ending total loans, gross	$	1,208,977		$	9,768,761
Average loans in repayment⁽²⁾	$	898,360		$	5,705,067
Ending loans in repayment⁽²⁾	$	872,579		$	5,995,121

____________

⁽¹⁾ Represents fair value adjustments on loans sold.

⁽²⁾ Loans in repayment include loans on which borrowers 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. 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 23 percent of the loans granted forbearance as of March 31, 2016 and December 31, 2015, respectively, have been classified as TDRs due to their forbearance status. For additional information, see Note 6, “Allowance for Loan Losses” in our 2015 Form 10-K.

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 continue to accrue interest on those loans through the date of claim.

At March 31, 2016 and December 31, 2015, 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.



	Recorded Investment		Unpaid Principal Balance		Allowance

March 31, 2016
TDR Loans	$	322,744	$	318,094	$	49,212

December 31, 2015
TDR Loans	$	269,628	$	265,831	$	43,480

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



	Three Months Ended				Three Months Ended
	March 31, 2016				March 31, 2015
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized

TDR Loans	$	297,315	$	5,583	$	88,120	$	2,396

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.



	March 31,				December 31,
	2016				2015
	Balance		%		Balance		%
TDR loans in in-school/grace/deferment⁽¹⁾	$	10,738			$	6,869
TDR loans in forbearance⁽²⁾	42,699				43,756
TDR loans in repayment⁽³⁾ and percentage of each status:
Loans current	232,720		88.0	%	185,936		86.4	%
Loans delinquent 31-60 days⁽⁴⁾	13,610		5.1		14,948		6.9
Loans delinquent 61-90 days⁽⁴⁾	11,109		4.2		9,239		4.3
Loans delinquent greater than 90 days⁽⁴⁾	7,218		2.7		5,083		2.4
Total TDR loans in repayment	264,657		100.0	%	215,206		100.0	%
Total TDR loans, gross	$	318,094			$	265,831

_____


⁽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⁾	Loans in repayment include loans on which borrowers are making interest only and fixed payments as well as loans that have entered full principal and interest repayment status.


⁽⁴⁾	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 table 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
	March 31, 2016						March 31, 2015
	Modified Loans⁽¹⁾		Charge-offs		Payment- Default		Modified Loans⁽¹⁾		Charge-offs		Payment- Default

TDR Loans	$	61,006	$	4,968	$	25,671	$	122,120	$	930	$	4,785

_____


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

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, the 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
	March 31, 2016				December 31, 2015
Credit Quality Indicators:	Balance⁽¹⁾		% of Balance		Balance⁽¹⁾		% of Balance

Cosigners:
With cosigner	$	10,914,736	90	%	$	9,515,136	90	%
Without cosigner	1,197,134		10		1,081,301		10
Total	$	12,111,870	100	%	$	10,596,437	100	%

FICO at Origination:
Less than 670	$	781,804	6	%	$	700,779	7	%
670-699	1,768,651		15		1,554,959		15
700-749	3,909,444		32		3,403,823		32
Greater than or equal to 750	5,651,971		47		4,936,876		46
Total	$	12,111,870	100	%	$	10,596,437	100	%

Seasoning⁽²⁾:
1-12 payments	$	3,664,441	30	%	$	3,059,901	29	%
13-24 payments	2,255,999		19		2,096,412		20
25-36 payments	1,171,202		10		1,084,818		10
37-48 payments	549,855		4		513,125		5
More than 48 payments	443,041		4		414,217		4
Not yet in repayment	4,027,332		33		3,427,964		32
Total	$	12,111,870	100	%	$	10,596,437	100	%


⁽¹⁾	Balance represents gross Private Education Loans.


⁽²⁾	Number of months in active repayment (whether interest only payment, fixed payment, or full principal and interest payment status) for which a scheduled payment was due.

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 our Private Education Loans. Loans in repayment include loans making interest only and fixed payments as well as loans that have entered full principal and interest repayment status.



	Private Education Loans
	March 31,					December 31,
	2016					2015
	Balance			%		Balance			%
Loans in-school/grace/deferment⁽¹⁾	$	4,027,332				$	3,427,964
Loans in forbearance⁽²⁾	241,462					241,207
Loans in repayment and percentage of each status:
Loans current	7,678,446			97.9	%	6,773,095			97.8	%
Loans delinquent 31-60 days⁽³⁾	78,242			1.0		91,129			1.3
Loans delinquent 61-90 days⁽³⁾	56,906			0.7		42,048			0.6
Loans delinquent greater than 90 days⁽³⁾	29,482			0.4		20,994			0.3
Total Private Education Loans in repayment	7,843,076			100.0	%	6,927,266			100.0	%
Total Private Education loans, gross	12,111,870					10,596,437
Private Education Loans deferred origination costs	31,772					27,884
Total Private Education Loans	12,143,642					10,624,321
Private Education Loans allowance for losses	(122,620		)			(108,816		)
Private Education Loans, net	$	12,021,022				$	10,515,505
Percentage of Private Education Loans in repayment				64.8	%				65.4	%
Delinquencies as a percentage of Private Education Loans in repayment				2.1	%				2.2	%
Loans in forbearance as a percentage of Private Education Loans in repayment and forbearance				3.0	%				3.4	%


⁽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)

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 Private Education Loan portfolio for all periods presented.



	Private Education Loan
	Accrued Interest Receivable
	Total Interest Receivable		Greater Than 90 Days Past Due		Allowance for Uncollectible Interest

March 31, 2016	$	619,226	$	1,034	$	3,074
December 31, 2015	$	542,919	$	791	$	3,332

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

4. Deposits

The following table summarizes total deposits at March 31, 2016 and December 31, 2015.



	March 31,		December 31,
	2016		2015
Deposits - interest bearing	$	11,542,392	$	11,487,006
Deposits - non-interest bearing	963		701
Total deposits	$	11,543,355	$	11,487,707

Interest Bearing

Interest bearing deposits as of March 31, 2016 and December 31, 2015 consisted of non-maturity savings and money market deposits, brokered and retail certificates of deposit (“CDs”), and brokered money market deposits (“MMDAs”). Included in these accounts are what we consider to be core deposits from various sources. Our deposit products are serviced by third-party providers. Placement fees associated with the brokered CDs are amortized into interest expense using the effective interest rate method. We recognized placement fee expense of $2.6 million and $2.7 million in the three months ended March 31, 2016 and 2015, respectively. Fees paid to third-party brokers related to these CDs were $2.8 million for the three months ended March 31, 2016. There were no such fees paid in the three months ended March 31, 2015.

Interest bearing deposits at March 31, 2016 and December 31, 2015 are summarized as follows:



	March 31, 2016				December 31, 2015
	Amount		Qtr.-End Weighted Average Stated Rate⁽¹⁾		Amount		Year-End Weighted Average Stated Rate⁽¹⁾

Money market	$	5,125,507	1.22	%	$	4,886,299	1.19	%
Savings	679,511		0.82		669,254		0.82
Certificates of deposit	5,737,374		1.19		5,931,453		0.98
Deposits - interest bearing	$	11,542,392			$	11,487,006

____________

⁽¹⁾ Includes the effect of interest rate swaps in effective hedge relationships.

As of March 31, 2016 and December 31, 2015, there were $251.5 million and $709.9 million, respectively, of deposits exceeding Federal Deposit Insurance Corporation (“FDIC”) insurance limits. Accrued interest on deposits was $24.6 million and $15.7 million at March 31, 2016 and December 31, 2015, respectively.

Non-Interest Bearing

Non-interest bearing deposits were $1.0 million and $0.7 million as of March 31, 2016 and December 31, 2015, respectively. For both periods, these were comprised of money market accounts related to our Employee Stock Purchase Plan account.

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)

5. Borrowings

Outstanding borrowings consist of secured borrowings issued through our term asset-backed securitization (“ABS”) program and our asset-backed commercial paper (“ABCP”) funding facility (the “ABCP Facility”). The following table summarizes our secured borrowings at March 31, 2016 and December 31, 2015.



	March 31, 2016						December 31, 2015
	Short-Term		Long-Term		Total		Short-Term		Long-Term		Total
Secured borrowings:
Private Education Loan term securitization	$	—	$	558,513	$	558,513	$	—	$	579,101	$	579,101
ABCP Facility	526,500		—		526,500		500,175		—		500,175
Total	$	526,500	$	558,513	$	1,085,013	$	500,175	$	579,101	$	1,079,276

Short-term Borrowings

Asset-Backed Commercial Paper Funding Facility

On December 19, 2014, we closed on a $750.0 million ABCP Facility. We retained a 5 percent or $37.5 million participation interest in the ABCP Facility, resulting in $712.5 million of funds available for us to draw under the ABCP Facility. During 2015, we incurred financing costs under the ABCP Facility of approximately 0.40 percent on average on unused borrowing capacity and approximately 3 month LIBOR plus 0.80 percent on outstandings under the ABCP Facility.

On February 25, 2016, we amended and extended the maturity of our ABCP Facility. The amended ABCP Facility is a $750.0 million ABCP Facility, in which we no longer hold a participation interest. As a result, the full $750.0 million is available for us to draw. We hold 100 percent of the residual interest in the ABCP Facility trust. Under the amended ABCP Facility, we incur financing costs of between 0.35 percent and 0.45 percent on unused borrowing capacity and approximately 3 month LIBOR plus 1.00 percent on outstandings. The amended ABCP Facility extends the revolving period, during which we may borrow, repay and reborrow funds, until February 23, 2017. The scheduled amortization period, during which amounts outstanding under the ABCP Facility must be repaid, ends on February 23, 2018 (or earlier, if certain material adverse events occur). At March 31, 2016, $526.5 million was outstanding under the ABCP Facility. At March 31, 2016, $902.0 million of our Private Education Loans were encumbered to support outstandings under the ABCP Facility.

Short-term borrowings have a remaining term to maturity of one year or less. The ABCP Facility's contractual maturity is two years from the date of inception or renewal (one year revolving period plus a one year amortization period); however, we classify advances under our ABCP Facility as short-term borrowings because it is our intention to repay those advances within one-year.

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)



5.	Borrowings (Continued)

Long-term Borrowings

Secured Financings at Issuance



Issue	Date Issued	Total Issued To Third Parties		Weighted Average Cost of Funds⁽¹⁾	Weighted Average Life

Private Education:
2015-B	July 2015	$	630,800	1 month LIBOR plus 1.53%	4.82
Total notes issued in 2015		$	630,800

Total loan amount securitized at inception of the above on-balance sheet term securitization		$	745,580

____________

⁽¹⁾ Represents LIBOR equivalent cost of funds for floating and fixed rate bonds, excluding issuance costs.

Consolidated Funding Vehicles

We consolidate our financing entities that are VIEs as a result of our being the entities’ primary beneficiary. As a result, these financing VIEs are accounted for as secured borrowings. We consolidate the following financing VIEs as of March 31, 2016 and December 31, 2015, respectively:



	March 31, 2016
	Debt Outstanding						Carrying Amount of Assets Securing Debt Outstanding
	Short-Term		Long-Term		Total		Loans		Restricted Cash		Other Assets⁽¹⁾		Total
Secured borrowings:
Private Education Loan term securitization	$	—	$	558,513	$	558,513	$	671,603	$	10,281	$	46,305	$	728,189
ABCP Facility	526,500		—		526,500		902,049		15,567		91,713		1,009,329
Total	$	526,500	$	558,513	$	1,085,013	$	1,573,652	$	25,848	$	138,018	$	1,737,518

____

(1) Other assets primarily represents accrued interest receivable.

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)



5.	Borrowings (Continued)

December 31, 2015

Debt Outstanding

Carrying Amount of Assets Securing Debt Outstanding

Short-Term

Long-Term

Total

Loans

Restricted Cash

Other Assets⁽¹⁾

Total

Secured borrowings:

Private Education Loan term securitization

—