Document



 
 
 
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, 2016
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, 2016
Common Stock, $0.20 par value
428,077,791 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
 
69

PART II. Other Information
 
 
Item 1.
Legal Proceedings
 
70

Item 1A.
Risk Factors
 
71

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
71

Item 3.
Defaults Upon Senior Securities
 
71

Item 4.
Mine Safety Disclosures
 
72

Item 5.
Other Information
 
72

Item 6.
Exhibits
 
72




2


SLM CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
 
 
 
June 30,
 
December 31,
 
 
2016
 
2015
Assets
 
 
 
 
Cash and cash equivalents
 
$
1,042,915

 
$
2,416,219

Available-for-sale investments at fair value (cost of $203,480 and $196,402, respectively)
 
206,785

 
195,391

Loans held for investment (net of allowance for losses of $144,925 and $112,507, respectively)
 
13,245,426

 
11,630,591

Restricted cash and investments
 
34,297

 
27,980

Other interest-earning assets
 
53,555

 
54,845

Accrued interest receivable
 
719,875

 
564,496

Premises and equipment, net
 
86,512

 
81,273

Tax indemnification receivable
 
160,325

 
186,076

Other assets
 
80,239

 
57,227

Total assets
 
$
15,629,929

 
$
15,214,098

 
 
 
 
 
Liabilities
 
 
 
 
Deposits
 
$
11,900,083

 
$
11,487,707

Short-term borrowings
 
—

 
500,175

Long-term borrowings
 
1,038,029

 
579,101

Income taxes payable, net
 
79,904

 
166,662

Upromise related liabilities
 
260,127

 
275,384

Other liabilities
 
154,875

 
108,746

Total liabilities
 
13,433,018

 
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: 433.9 million and 430.7 million shares issued, respectively
 
86,769

 
86,136

Additional paid-in capital
 
1,149,783

 
1,135,860

Accumulated other comprehensive loss (net of tax benefit of $20,944 and $9,949, respectively)
 
(33,853
)
 
(16,059
)
Retained earnings
 
478,947

 
366,609

Total SLM Corporation stockholders' equity before treasury stock
 
2,246,646

 
2,137,546

Less: Common stock held in treasury at cost: 5.8 million and 4.4 million shares, respectively
 
(49,735
)
 
(41,223
)
Total equity
 
2,196,911

 
2,096,323

Total liabilities and equity
 
$
15,629,929

 
$
15,214,098


See accompanying notes to consolidated financial statements.

3


SLM CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
 
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2016
 
2015
 
2016
 
2015
Interest income:
 
 
 
 
 
 
 
 
Loans
 
$
251,675

 
$
195,287

 
$
496,905

 
$
393,143

Investments
 
2,371

 
2,386

 
4,962

 
5,106

Cash and cash equivalents
 
1,195

 
801

 
2,829

 
1,581

Total interest income
 
255,241

 
198,474

 
504,696

 
399,830

Interest expense:
 
 
 
 
 
 
 
 
Deposits
 
35,409

 
29,482

 
69,423

 
59,052

Interest expense on short-term borrowings
 
2,060

 
735

 
4,223

 
1,567

Interest expense on long-term borrowings
 
5,006

 
—

 
8,421

 
—

Total interest expense
 
42,475

 
30,217

 
82,067

 
60,619

Net interest income
 
212,766

 
168,257

 
422,629

 
339,211

Less: provisions for credit losses
 
41,793

 
15,558

 
74,395

 
32,176

Net interest income after provisions for credit losses
 
170,973

 
152,699

 
348,234

 
307,035

Non-interest income:
 
 
 
 
 
 
 
 
Gains on sales of loans, net
 
—

 
76,874

 
—

 
76,874

Gains on derivatives and hedging activities, net
 
2,142

 
1,602

 
1,788

 
4,894

Other
 
13,683

 
10,912

 
34,711

 
18,919

Total non-interest income
 
15,825

 
89,388

 
36,499

 
100,687

Expenses:
 
 
 
 
 
 
 
 
Compensation and benefits
 
44,570

 
38,572

 
94,779

 
79,775

Other operating expenses
 
50,207

 
51,227

 
92,883

 
91,211

Total operating expenses
 
94,777

 
89,799

 
187,662

 
170,986

Acquired intangible asset amortization expense
 
261

 
370

 
521

 
740

Restructuring and other reorganization expenses
 
—

 
744

 
—

 
5,401

Total expenses
 
95,038

 
90,913

 
188,183

 
177,127

Income before income tax expense
 
91,760

 
151,174

 
196,550

 
230,595

Income tax expense
 
34,555

 
60,158

 
73,430

 
91,880

Net income
 
57,205

 
91,016

 
123,120

 
138,715

Preferred stock dividends
 
5,243

 
4,870

 
10,382

 
9,693

Net income attributable to SLM Corporation common stock
 
$
51,962

 
$
86,146

 
$
112,738

 
$
129,022

Basic earnings per common share attributable to SLM Corporation
 
$
0.12

 
$
0.20

 
$
0.26

 
$
0.30

Average common shares outstanding
 
427,942

 
425,688

 
427,526

 
425,061

Diluted earnings per common share attributable to SLM Corporation
 
$
0.12

 
$
0.20

 
$
0.26

 
$
0.30

Average common and common equivalent shares outstanding
 
431,796

 
432,742

 
431,349

 
432,523





See accompanying notes to consolidated financial statements.

4


SLM CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
 
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2016
 
2015
 
2016
 
2015
Net income
 
$
57,205

 
$
91,016

 
$
123,120

 
$
138,715

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Unrealized gains (losses) on investments
 
1,293

 
(3,180
)
 
4,317

 
(2,507
)
Unrealized (losses) gains on cash flow hedges
 
(8,732
)
 
18,156

 
(33,106
)
 
2,467

Total unrealized (losses) gains
 
(7,439
)
 
14,976

 
(28,789
)
 
(40
)
Income tax benefit (expense)
 
2,855

 
(5,840
)
 
10,995

 
(15
)
Other comprehensive (loss) income, net of tax benefit (expense)
 
(4,584
)
 
9,136

 
(17,794
)
 
(55
)
Total comprehensive income
 
$
52,621

 
$
100,152

 
$
105,326

 
$
138,660


















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 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
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
123,120

 
—

 
123,120

Other comprehensive loss, net of tax
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(17,794
)
 
—

 
—

 
(17,794
)
Total comprehensive income
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
105,326

Cash dividends:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred Stock, series A ($0.87 per share)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(5,750
)
 
—

 
(5,750
)
Preferred Stock, series B ($0.60 per share)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(4,632
)
 
—

 
(4,632
)
Dividend equivalent units related to employee stock-based compensation plans
 
—

 
—

 
—

 
—

 
—

 
—

 
400

 
—

 
(400
)
 
—

 
—

Issuance of common shares
 
—

 
3,166,474

 

 
3,166,474

 
—

 
633

 
3,224

 
—

 
—

 
—

 
3,857

Tax benefit related to employee stock-based compensation
 
—

 
—

 
—

 
—

 
—

 
—

 
(2,249
)
 
—

 
—

 
—

 
(2,249
)
Stock-based compensation expense
 
—

 
—

 
—

 
—

 
—

 
—

 
12,548

 
—

 
—

 
—

 
12,548

Shares repurchased related to employee stock-based compensation plans
 
—

 
—

 
(1,391,927
)
 
(1,391,927
)
 
—

 
—

 
—

 
—

 
—

 
(8,512
)
 
(8,512
)
Balance at June 30, 2016
 
7,300,000

 
433,843,908

 
(5,766,117
)
 
428,077,791

 
$
565,000

 
$
86,769

 
$
1,149,783

 
$
(33,853
)
 
$
478,947

 
$
(49,735
)
 
$
2,196,911













See accompanying notes to consolidated financial statements.

7


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


 
 
Six Months Ended
 
 
June 30,
 
 
2016
 
2015
Operating activities
 
 
 
 
Net income
 
$
123,120

 
$
138,715

Adjustments to reconcile net income to net cash used in operating activities:
 
 
 
 
Provisions for credit losses
 
74,395

 
32,176

Income tax expense
 
73,430

 
91,880

Amortization of brokered deposit placement fee
 
5,179

 
5,352

Amortization of ABCP Facility upfront fee
 
502

 
1,202

Amortization of deferred loan origination costs and fees, net
 
2,720

 
1,558

Net amortization of discount on investments
 
793

 
883

Interest income on tax indemnification receivable
 
(4,066
)
 
(3,507
)
Depreciation of premises and equipment
 
2,295

 
3,436

Amortization of acquired intangibles
 
261

 
740

Stock-based compensation expense
 
12,548

 
11,210

Unrealized gains on derivative and hedging activities, net
 
(835
)
 
(3,219
)
Gains on sale of loans, net
 
—

 
(76,874
)
Other adjustments to net income, net
 
1,101

 
—

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
 
(277,582
)
 
(191,011
)
Decrease in restricted cash and investments - other
 
2,053

 
631

Decrease in other interest-earning assets
 
1,290

 
21,392

Decrease in tax indemnification receivable
 
29,816

 
14,908

Increase in other assets
 
(14,591
)
 
(25,214
)
Decrease in income tax payable, net
 
(149,193
)
 
(97,545
)
Increase (decrease) in accrued interest payable
 
2,924

 
(352
)
Decrease in payable due to entity that is a subsidiary of Navient
 
(808
)
 
(6,542
)
Increase (decrease) in other liabilities
 
7,976

 
(3,707
)
Total adjustments
 
(229,792
)
 
(222,603
)
Total net cash used in operating activities
 
(106,672
)
 
(83,888
)
Investing activities
 
 
 
 
Loans acquired and originated
 
(2,234,556
)
 
(2,070,373
)
Net proceeds from sales of loans held for investment
 
5,736

 
785,481

Proceeds from claim payments
 
33,892

 
67,769

Net decrease in loans held for investment
 
624,040

 
445,610

Increase in restricted cash and investments - variable interest entities
 
(8,369
)
 
—

Purchases of available-for-sale securities
 
(23,362
)
 
(26,237
)
Proceeds from sales and maturities of available-for-sale securities
 
15,492

 
17,936

Total net cash used in investing activities
 
(1,587,127
)
 
(779,814
)
Financing activities
 
 
 
 
Brokered deposit placement fee
 
(2,875
)
 
—

Net increase (decrease) in certificates of deposit
 
56,272

 
(140,693
)
Net increase (decrease) increase in other deposits
 
322,959

 
(72,499
)
Issuance costs for collateralized borrowings
 
(386
)
 
—

Borrowings collateralized by loans in securitization trusts - issued
 
499,393

 
—

Borrowings collateralized by loans in securitization trusts - repaid
 
(40,618
)
 
—


8


Borrowings under ABCP Facility
 
26,325

 
—

Repayment of borrowings under ABCP Facility
 
(526,500
)
 
—

Fees paid on ABCP Facility
 
(1,444
)
 
(104
)
Excess tax (expense) benefit from the exercise of stock-based awards
 
(2,249
)
 
5,774

Preferred stock dividends paid
 
(10,382
)
 
(9,693
)
Net cash provided by (used in) financing activities
 
320,495

 
(217,215
)
Net decrease in cash and cash equivalents
 
(1,373,304
)
 
(1,080,917
)
Cash and cash equivalents at beginning of period
 
2,416,219

 
2,359,780

Cash and cash equivalents at end of period
 
$
1,042,915

 
$
1,278,863

Cash disbursements made for:
 
 
 
 
Interest
 
$
75,165

 
$
52,789

Income taxes paid
 
$
149,173

 
$
91,552

Income taxes received
 
$
(86
)
 
$
(80
)
See accompanying notes to consolidated financial statements.

9



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 and six months ended June 30, 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.
On June 16, 2016, the FASB issued ASU No. 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which requires measurement and recognition of expected credit losses for financial assets held. Under this standard, we will be required to hold an allowance equal to the expected life-of-loan losses on our loan portfolio. The standard is effective for fiscal periods beginning after December 15, 2019. While we are currently evaluating the impact of our pending adoption of this standard on our consolidated financial statements, we do expect the adoption to have a material impact on our financial statements.


10



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 June 30, 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 provide total cost incentives for 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:
 
 
June 30,
 
December 31,
 
 
2016
 
2015
Private Education Loans
 
$
12,290,709

 
$
10,596,437

Deferred origination costs
 
35,212

 
27,884

Allowance for loan losses
 
(142,628
)
 
(108,816
)
Total Private Education Loans, net
 
12,183,293

 
10,515,505

 
 
 
 
 
FFELP Loans
 
1,061,517

 
1,115,663

Unamortized acquisition costs, net
 
2,913

 
3,114

Allowance for loan losses
 
(2,297
)
 
(3,691
)
Total FFELP Loans, net
 
1,062,133

 
1,115,086

 
 
 
 
 
Loans held for investment, net
 
$
13,245,426

 
$
11,630,591


 
The estimated weighted average life of education loans in our portfolio was approximately 6.0 years and 6.2 years at June 30, 2016 and December 31, 2015, respectively.

11



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
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2016
 
2015
 
2016
 
2015
 
 
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
 
$
12,217,890

 
7.98
%
 
$
9,361,711

 
7.96
%
 
$
12,017,799

 
8.00
%
 
$
9,407,888

 
8.01
%
FFELP Loans
 
1,076,419

 
3.48

 
1,194,309

 
3.22

 
1,089,836

 
3.45

 
1,214,384

 
3.20

Total portfolio
 
$
13,294,309

 
 
 
$
10,556,020

 
 
 
$
13,107,635

 
 
 
$
10,622,272

 
 



12



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, 2016
 
 
FFELP Loans
 
Private Education
Loans
 
Total
Allowance for Loan Losses
 
 
 
 
 
 
Beginning balance
 
$
3,629

 
$
122,620

 
$
126,249

Total provision
 
(985
)
 
42,362

 
41,377

Net charge-offs:
 
 
 
 
 
 
Charge-offs
 
(347
)
 
(23,903
)
 
(24,250
)
Recoveries
 
—

 
3,082

 
3,082

Net charge-offs
 
(347
)
 
(20,821
)
 
(21,168
)
Loan sales(1)
 
—

 
(1,533
)
 
(1,533
)
Ending Balance
 
$
2,297

 
$
142,628

 
$
144,925

Allowance:
 
 
 
 
 
 
Ending balance: individually evaluated for impairment
 
$
—

 
$
63,370

 
$
63,370

Ending balance: collectively evaluated for impairment
 
$
2,297

 
$
79,258

 
$
81,555

Loans:
 
 
 
 
 
 
Ending balance: individually evaluated for impairment
 
$
—

 
$
400,969

 
$
400,969

Ending balance: collectively evaluated for impairment
 
$
1,061,517

 
$
11,889,740

 
$
12,951,257

Net charge-offs as a percentage of average loans in repayment (annualized)(2)
 
0.18
%
 
1.05
%
 
 
Allowance as a percentage of the ending total loan balance
 
0.22
%
 
1.16
%
 
 
Allowance as a percentage of the ending loans in repayment(2)
 
0.30
%
 
1.78
%
 
 
Allowance coverage of net charge-offs (annualized)
 
1.65

 
1.71

 
 
Ending total loans, gross
 
$
1,061,517

 
$
12,290,709

 
 
Average loans in repayment(2)
 
$
786,818

 
$
7,894,340

 
 
Ending loans in repayment(2)
 
$
773,321

 
$
8,029,034

 
 

____________
(1) Represents fair value adjustments on loans sold.
(2) Loans in repayment include loans on which borrowers are making interest only or fixed payments, as well as loans that have entered full principal and interest repayment status after any applicable grace period.

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
 
 
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 adjustments on loans sold.
(2) Loans in repayment include loans on which borrowers are making interest only or fixed payments, as well as loans that have entered full principal and interest repayment status after any applicable grace period.



    


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, 2016
 
 
FFELP Loans
 
Private Education
Loans
 
Total
Allowance for Loan Losses
 
 
 
 
 
 
Beginning balance
 
$
3,691

 
$
108,816

 
$
112,507

Total provision
 
(664
)
 
76,201

 
75,537

Net charge-offs:
 
 
 
 
 
 
Charge-offs
 
(730
)
 
(42,907
)
 
(43,637
)
Recoveries
 
—

 
4,125

 
4,125

Net charge-offs
 
(730
)
 
(38,782
)
 
(39,512
)
Loan sales(1)
 
—

 
(3,607
)
 
(3,607
)
Ending Balance
 
$
2,297

 
$
142,628

 
$
144,925

Allowance:
 
 
 
 
 
 
Ending balance: individually evaluated for impairment
 
$
—

 
$
63,370

 
$
63,370

Ending balance: collectively evaluated for impairment
 
$
2,297

 
$
79,258

 
$
81,555

Loans:
 
 
 
 
 
 
Ending balance: individually evaluated for impairment
 
$
—

 
$
400,969

 
$
400,969

Ending balance: collectively evaluated for impairment
 
$
1,061,517

 
$
11,889,740

 
$
12,951,257

Net charge-offs as a percentage of average loans in repayment (annualized)(2)
 
0.18
%
 
1.01
%
 
 
Allowance as a percentage of the ending total loan balance
 
0.22
%
 
1.16
%
 
 
Allowance as a percentage of the ending loans in repayment(2)
 
0.30
%
 
1.78
%
 
 
Allowance coverage of net charge-offs (annualized)
 
1.57

 
1.84

 
 
Ending total loans, gross
 
$
1,061,517

 
$
12,290,709

 
 
Average loans in repayment(2)
 
$
794,665

 
$
7,695,889

 
 
Ending loans in repayment(2)
 
$
773,321

 
$
8,029,034

 
 

____________
(1) Represents fair value adjustments on loans sold.
(2) Loans in repayment include loans on which borrowers are making interest only or fixed payments, as well as loans that have entered full principal and interest repayment status after any applicable grace period.





15



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 adjustments on loans sold.
(2) Loans in repayment include loans on which borrowers are making interest only or fixed payments, as well as loans that have entered full principal and interest repayment status after any applicable grace period.



16



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 24 percent and 23 percent of the loans granted forbearance as of June 30, 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 June 30, 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
 
 
 
 
 
 
 
June 30, 2016
 
 
 
 
 
 
TDR Loans
 
$
406,152

 
$
400,969

 
$
63,370

 
 
 
 
 
 
 
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
 
 
June 30, 2016
 
June 30, 2015
 
 
Average
Recorded
Investment
 
Interest
Income
Recognized
 
Average
Recorded
Investment
 
Interest
Income
Recognized
 
 
 
 
 
 
 
 
 
TDR Loans
 
$
364,882

 
$
6,697

 
$
155,763

 
$
3,206


    

17



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

 
 
Six Months Ended
 
Six Months Ended
 
 
June 30, 2016
 
June 30, 2015
 
 
Average
Recorded
Investment
 
Interest
Income
Recognized
 
Average
Recorded
Investment
 
Interest
Income
Recognized
 
 
 
 
 
 
 
 
 
TDR Loans
 
$
332,292

 
$
12,280

 
$
121,690

 
$
5,116



The following table provides information regarding the loan status of TDR loans.

 
 
June 30,
 
December 31,
 
 
2016
 
2015
 
 
Balance
 
%
 
Balance
 
%
TDR loans in in-school/grace/deferment(1)
 
$
12,937

 
 
 
$
6,869

 
 
TDR loans in forbearance(2)
 
59,834

 
 
 
43,756

 
 
TDR loans in repayment(3) and percentage of each status:
 
 
 
 
 
 
 
 
Loans current
 
292,740

 
89.2
%
 
185,936

 
86.4
%
Loans delinquent 31-60 days(4)
 
17,134

 
5.2

 
14,948

 
6.9

Loans delinquent 61-90 days(4)
 
12,150

 
3.7

 
9,239

 
4.3

Loans delinquent greater than 90 days(4)
 
6,174

 
1.9

 
5,083

 
2.4

Total TDR loans in repayment
 
328,198

 
100.0
%
 
215,206

 
100.0
%
Total TDR loans, gross
 
$
400,969

 
 
 
$
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 or fixed payments, as well as loans that have entered full principal and interest repayment status after any applicable grace period.
(4) 
The period of delinquency is based on the number of days scheduled payments are contractually past due.

    

18



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 
 June 30, 2016
 
Three Months Ended 
 June 30, 2015
 
 
Modified Loans(1)
 
Charge-offs
 
Payment-
Default
 
Modified Loans(1)
 
Charge-offs
 
Payment-
Default
 
 
 
 
 
 
 
 
 
 
 
 
 
TDR Loans
 
$
92,782

 
$
5,464

 
$
21,388

 
$
75,183

 
$
1,740

 
$
8,394


 
 
Six Months Ended 
 June 30, 2016
 
Six Months Ended 
 June 30, 2015
 
 
Modified Loans(1)
 
Charge-offs
 
Payment-
Default
 
Modified Loans(1)
 
Charge-offs
 
Payment-
Default
 
 
 
 
 
 
 
 
 
 
 
 
 
TDR Loans
 
$
153,848

 
$
10,432

 
$
47,089

 
$
139,091

 
$
2,388

 
$
13,177

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



19



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 original approval 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, 2016
 
December 31, 2015
Credit Quality Indicators:
 
Balance(1)
 
% of Balance
 
Balance(1)
 
% of Balance
 
 
 
 
 
 
 
 
 
Cosigners:
 
 
 
 
 
 
 
 
With cosigner
 
$
11,035,215

 
90
%
 
$
9,515,136

 
90
%
Without cosigner
 
1,255,494

 
10

 
1,081,301

 
10

Total
 
$
12,290,709

 
100
%
 
$
10,596,437

 
100
%
 
 
 
 
 
 
 
 
 
FICO at Original Approval:
 
 
 
 
 
 
 
 
Less than 670
 
$
796,650

 
6
%
 
$
700,779

 
7
%
670-699
 
1,804,573

 
15

 
1,554,959

 
15

700-749
 
3,978,560

 
32

 
3,403,823

 
32

Greater than or equal to 750
 
5,710,926

 
47

 
4,936,876

 
46

Total
 
$
12,290,709

 
100
%
 
$
10,596,437

 
100
%
 
 
 
 
 
 
 
 
 
Seasoning(2):
 
 
 
 
 
 
 
 
1-12 payments
 
$
3,751,609

 
30
%
 
$
3,059,901

 
29
%
13-24 payments
 
2,299,536

 
19

 
2,096,412