Edgar Filing: SLM CORP

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 March 31, 2017


¨	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,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	þ		Accelerated filer	¨
Non-accelerated filer	¨	(Do not check if a smaller reporting company)	Smaller reporting company	¨
Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

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, 2017
Common Stock, $0.20 par value	431,038,789 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	66
Item 4.	Controls and Procedures	70
PART II. Other Information
Item 1.	Legal Proceedings	71
Item 1A.	Risk Factors	72
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	72
Item 3.	Defaults Upon Senior Securities	72
Item 4.	Mine Safety Disclosures	73
Item 5.	Other Information	73
Item 6.	Exhibits	73

SLM CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)



	March 31,			December 31,
	2017			2016
Assets
Cash and cash equivalents	$	1,077,576		$	1,918,793
Available-for-sale investments at fair value (cost of $221,265 and $211,406, respectively)	216,896			208,603
Loans held for investment (net of allowance for losses of $187,086 and $184,701, respectively)	16,562,210			15,137,922
Restricted cash and investments	94,146			53,717
Other interest-earning assets	50,342			49,114
Accrued interest receivable	838,461			766,106
Premises and equipment, net	87,982			87,063
Tax indemnification receivable	261,033			259,532
Other assets	47,855			52,153
Total assets	$	19,236,501		$	18,533,003

Liabilities
Deposits	$	13,361,871		$	13,435,667
Long-term borrowings	2,837,347			2,167,979
Income taxes payable, net	234,414			184,324
Upromise member accounts	249,086			256,041
Other liabilities	118,427			141,934
Total liabilities	16,801,145			16,185,945

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: 440.4 million and 436.6 million shares issued, respectively	88,075			87,327
Additional paid-in capital	1,191,466			1,175,564
Accumulated other comprehensive loss (net of tax benefit of $4,132 and $5,364, respectively)	(6,691		)	(8,671		)
Retained earnings	684,165			595,322
Total SLM Corporation stockholders’ equity before treasury stock	2,522,015			2,414,542
Less: Common stock held in treasury at cost: 9.3 million and 7.7 million shares, respectively	(86,659		)	(67,484		)
Total equity	2,435,356			2,347,058
Total liabilities and equity	$	19,236,501		$	18,533,003

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,
	2017			2016
Interest income:
Loans	$	324,757		$	245,230
Investments	2,143			2,591
Cash and cash equivalents	2,588			1,634
Total interest income	329,488			249,455
Interest expense:
Deposits	44,852			34,012
Interest expense on short-term borrowings	1,236			2,163
Interest expense on long-term borrowings	15,323			3,415
Other interest expense	1			2
Total interest expense	61,412			39,592
Net interest income	268,076			209,863
Less: provisions for credit losses	25,296			32,602
Net interest income after provisions for credit losses	242,780			177,261
Non-interest income:
Losses on derivatives and hedging activities, net	(5,378		)	(354		)
Other income	11,346			21,028
Total non-interest income	5,968			20,674
Non-interest expenses:
Compensation and benefits	55,464			50,209
FDIC assessment fees	7,229			4,176
Other operating expenses	39,984			38,500
Total operating expenses	102,677			92,885
Acquired intangible asset amortization expense	117			260
Total non-interest expenses	102,794			93,145
Income before income tax expense	145,954			104,790
Income tax expense	51,011			38,875
Net income	94,943			65,915
Preferred stock dividends	5,575			5,139
Net income attributable to SLM Corporation common stock	$	89,368		$	60,776
Basic earnings per common share attributable to SLM Corporation	$	0.21		$	0.14
Average common shares outstanding	429,891			427,111
Diluted earnings per common share attributable to SLM Corporation	$	0.20		$	0.14
Average common and common equivalent shares outstanding	438,735			430,903

See accompanying notes to consolidated financial statements.

SLM CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)



	Three Months Ended
	March 31,
	2017			2016
Net income	$	94,943		$	65,915
Other comprehensive income (loss):
Unrealized (losses) gains on investments	(1,567		)	3,024
Unrealized gains (losses) on cash flow hedges	4,779			(24,374		)
Total unrealized gains (losses)	3,212			(21,350		)
Income tax (expense) benefit	(1,232		)	8,140
Other comprehensive income (loss), net of tax (expense) benefit	1,980			(13,210		)
Total comprehensive income	$	96,923		$	52,705

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 Loss			Retained Earnings			Treasury Stock			Total 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 ($.87 per share)	—	—	—		—		—		—		—			—			(2,875		)	—			(2,875		)
Preferred Stock, series B ($.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 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 Equity
Balance at December 31, 2016	7,300,000	436,632,479	(7,728,920	)	428,903,559		$	565,000	$	87,327	$	1,175,564	$	(8,671	)	$	595,322		$	(67,484	)	$	2,347,058
Net income	—	—	—		—		—		—		—		—			94,943			—			94,943
Other comprehensive income, net of tax	—	—	—		—		—		—		—		1,980			—			—			1,980
Total comprehensive income	—	—	—		—		—		—		—		—			—			—			96,923
Cumulative effect of the new stock compensation standard	—	—	—		—		—		—		594		—			(429		)	—			165
Cash dividends:
Preferred Stock, series A ($0.87 per share)	—	—	—		—		—		—		—		—			(2,875		)	—			(2,875		)
Preferred Stock, series B ($0.67 per share)	—	—	—		—		—		—		—		—			(2,700		)	—			(2,700		)
Dividend equivalent units related to employee stock-based compensation plans	—	—	—		—		—		—		96		—			(96		)	—			—
Issuance of common shares	—	3,738,717			3,738,717		—		748		5,787		—			—			—			6,535
Stock-based compensation expense	—	—	—		—		—		—		9,425		—			—			—			9,425
Shares repurchased related to employee stock-based compensation plans	—	—	(1,603,487	)	(1,603,487	)	—		—		—		—			—			(19,175		)	(19,175		)
Balance at March 31, 2017	7,300,000	440,371,196	(9,332,407	)	431,038,789		$	565,000	$	88,075	$	1,191,466	$	(6,691	)	$	684,165		$	(86,659	)	$	2,435,356

See accompanying notes to consolidated financial statements.

SLM CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



	Three Months Ended
	March 31,
	2017			2016
Operating activities
Net income	$	94,943		$	65,915
Adjustments to reconcile net income to net cash used in operating activities:
Provisions for credit losses	25,296			32,602
Income tax expense	51,011			38,875
Amortization of brokered deposit placement fee	2,130			2,615
Amortization of ABCP Facility upfront fee	352			122
Amortization of deferred loan origination costs and fees, net	1,777			1,223
Net amortization of discount on investments	452			342
Interest income on tax indemnification receivable	(1,501		)	(1,080		)
Depreciation of premises and equipment	2,585			2,104
Amortization of acquired intangibles	117			260
Stock-based compensation expense	9,425			6,216
Unrealized losses on derivative and hedging activities, net	5,364			832
Other adjustments to net income, net	1,258			250
Changes in operating assets and liabilities:
Increase in accrued interest receivable	(153,055		)	(147,257		)
Decrease in restricted cash and investments, net	5,636			6,778
Increase in other interest-earning assets	(1,228		)	(3,606		)
Increase in other assets	(13,435		)	(11,391		)
Decrease in income taxes payable, net	(1,689		)	(57,119		)
Increase in accrued interest payable	6,146			9,079
Increase in payable due to entity that is a subsidiary of Navient	227			1,169
(Decrease) increase in other liabilities	(39,424		)	2,159
Total adjustments	(98,556		)	(115,827		)
Total net cash used in operating activities	(3,613		)	(49,912		)
Investing activities
Loans acquired and originated	(1,892,697		)	(1,806,583		)
Net proceeds from sales of loans held for investment	1,972			3,365
Proceeds from claim payments	11,932			18,528
Net decrease in loans held for investment	506,637			332,414
Increase in restricted cash and investments - variable interest entities	(46,065		)	(3,410		)
Purchases of available-for-sale securities	(18,481		)	(12,090		)
Proceeds from sales and maturities of available-for-sale securities	8,170			6,566
Total net cash used in investing activities	(1,428,532		)	(1,461,210		)
Financing activities
Brokered deposit placement fee	(2,084		)	(2,759		)
Net decrease in certificates of deposit	(151,003		)	(209,411		)
Net increase in other deposits	83,018			245,893
Borrowings collateralized by loans in securitization trusts - issued	767,994			—
Borrowings collateralized by loans in securitization trusts - repaid	(99,884		)	(20,276		)
Issuance costs for unsecured debt offering	(23		)	—
Borrowings under ABCP Facility	—			26,325
Fees paid on ABCP Facility	(1,515		)	(1,250		)
Preferred stock dividends paid	(5,575		)	(5,139		)



Net cash provided by financing activities	590,928			33,383
Net decrease in cash and cash equivalents	(841,217		)	(1,477,739		)
Cash and cash equivalents at beginning of period	1,918,793			2,416,219
Cash and cash equivalents at end of period	$	1,077,576		$	938,480
Cash disbursements made for:
Interest	$	54,648		$	32,766
Income taxes paid	$	1,426		$	56,163
Income taxes refunded	$	(32	)	$	(86	)

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, 2017 are not necessarily indicative of the results for the year ending December 31, 2017 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, 2016 (the “2016 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.

Allowance for Loan Losses

We maintain an allowance for loan losses at an amount sufficient to absorb probable losses incurred in our portfolios at the reporting date based on a projection of estimated probable credit losses incurred in the portfolio. Please refer to Note 2, “Significant Accounting Policies - Allowance for Loan Losses - Allowance for Private Education Loan Losses” in the 2016 Form 10-K for a description of certain information we use in estimating allowance amounts for Private Education Loans.

Troubled Debt Restructurings (“TDRs”)

For our TDR portfolio, we estimate an allowance amount 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. Our TDR portfolio is comprised mostly of loans with interest rate reductions and loans with forbearance usage greater than three months.

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. We generally consider a loan that is in full principal and interest repayment status which has received more than three months of forbearance in a 24-month period to be a TDR; however, during the first nine months after a loan has entered full principal and interest repayment status, we do not count up to the first six months of forbearance received during that period against the three-month policy limit.

A loan also 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

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)



1.	Significant Accounting Policies (Continued)

TDRs involve a temporary forbearance of payments and do not change the contractual interest rate of the loan. Once a loan qualifies for TDR status, it remains a TDR for allowance purposes for the remainder of its life. Approximately 26 percent of the loans granted forbearance as of March 31, 2017 and December 31, 2016, were classified as TDRs due to their forbearance status.

Derivative Accounting

We account for our derivatives, consisting of interest rate swaps, at fair value on the consolidated balance sheets as either an asset or liability. Derivative positions are recorded as net positions by counterparty based on master netting arrangements (see Note 6, “Derivative Financial Instruments”), exclusive of accrued interest and cash collateral held or pledged. The Chicago Mercantile Exchange (“CME”) and the London Clearing House (“LCH”) made amendments to their respective rules that resulted in the prospective accounting treatment of certain daily payments historically treated as the posting of collateral (variation margin payments) being considered as the legal settlement of the outstanding exposure of the derivative. While the CME rule, which became effective in January 2017, is mandatory, the LCH allows a clearing member institution the option to adopt the rule changes on an individual contract or portfolio basis. As of March 31, 2017, $4.5 billion notional of our derivative contracts were cleared on the CME and $0.7 billion were cleared on the LCH. The derivative contracts cleared through the CME and LCH represent 79.8 percent and 13.1 percent, respectively, of our total notional derivative contracts of $5.6 billion at March 31, 2017.

Under this new rule, for derivatives cleared through the CME, the net gain (loss) position includes the variation margin amounts as settlement of the derivative and not collateral against the fair value of the derivative. Interest income (expense) related to variation margin on derivatives that are not designated as hedging instruments or are designated as fair value relationships is recognized as a gain (loss) rather than as interest income (expense). Changes in fair value for derivatives not designated as hedging instruments will be presented as realized gains (losses).

Our LCH clearing member institution has elected not to adopt the new rule change. Therefore, there has been no change to the accounting for the derivatives cleared through the LCH, and variation margin payments required to be exchanged based on the fair value of these derivatives remain accounted for as collateral.

We determine the fair value for our derivative contracts primarily using pricing models that consider current market conditions and the contractual terms of the derivative contracts. These pricing models consider interest rates, time value, forward interest rate curves, and volatility factors. Inputs are generally from active financial markets.

The majority of our derivatives qualify as effective hedges. For these derivatives, the relationship between the hedging instrument and the hedged items (including the hedged risk and method for assessing effectiveness), as well as the risk management objective and strategy for undertaking various hedge transactions at the inception of the hedging relationship, is documented.

Each derivative is designated to a specific (or pool of) liability(ies) on the consolidated balance sheets, and is designated as either a “fair value” hedge or a “cash flow” hedge. Fair value hedges are designed to hedge our exposure to changes in fair value of a fixed-rate liability. For effective fair value hedges, both the hedge and the hedged item (for the risk being hedged) are recorded at fair value with any difference reflecting ineffectiveness recorded immediately in the consolidated statements of income. Cash flow hedges are designed to hedge our exposure to variability in cash flows related to variable-rate deposits. The assessment of the hedge’s effectiveness is performed at inception and on an ongoing basis, generally using regression testing. For hedges of a pool of liabilities, tests are performed to demonstrate the similarity of individual instruments of the pool. When it is determined that a derivative is not currently an effective hedge, ineffectiveness is recognized for the full change in fair value of the derivative with no offsetting amount from the hedged item since the last time it was effective. If it is also determined the hedge will not be effective in the future, we discontinue the hedge accounting prospectively and begin amortization of any basis adjustments that exist related to the hedged item.

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)



1.	Significant Accounting Policies (Continued)

Stock-Based Compensation

We recognize stock-based compensation cost in our consolidated statements of income using the fair value method. Under this method, we determine the fair value of the stock-based compensation at the time of the grant and recognize the resulting compensation expense over the vesting period of the stock-based grant. On January 1, 2017, we adopted the Financial Accounting Standards Board’s (“FASB’s”) Accounting Standards Update (“ASU”) 2016-09 “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” This new guidance requires that we record all excess tax benefits/deficiencies related to the settlement of employee stock-based compensation to the income tax expense line item on our consolidated statements of income, under a modified retrospective basis. In the quarter ended March 31, 2017, we recorded a $6 million benefit in income tax expense because of this new standard. We previously recorded the excess tax benefits/deficiencies to the additional paid-in capital line item on our consolidated balance sheets. Under the new guidance, we also elected the option to no longer apply a forfeiture rate to our stock-based compensation expense, but to record forfeitures when they occur, and, as a result, under a modified retrospective basis we recorded a cumulative effect of the new stock compensation standard in total equity of $0.2 million, net of tax, in the first quarter of 2017.

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, FFELP Loans and Personal 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”). We use “Personal Loans” to mean those unsecured loans to individuals that may be used for non-educational purposes. We began to opportunistically acquire Personal Loans in late 2016.

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, 2017, 82 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:



	March 31,			December 31,
	2017			2016
Private Education Loans	$	15,654,854		$	14,251,675
Deferred origination costs	46,692			44,206
Allowance for loan losses	(185,103		)	(182,472		)
Total Private Education Loans, net	15,516,443			14,113,409

FFELP Loans	989,393			1,010,908
Unamortized acquisition costs, net	2,855			2,941
Allowance for loan losses	(1,637		)	(2,171		)
Total FFELP Loans, net	990,611			1,011,678

Personal Loans	55,502			12,893
Allowance for loan losses	(346		)	(58		)
Total Personal Loans, net	55,156			12,835

Loans held for investment, net	$	16,562,210		$	15,137,922

The estimated weighted average life of education loans in our portfolio was approximately 6.0 years and 6.0 years at March 31, 2017 and December 31, 2016, 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 loans in our portfolio are summarized as follows:



	Three Months Ended
	March 31,
	2017				2016
	Average Balance		Weighted Average Interest Rate		Average Balance		Weighted Average Interest Rate
Private Education Loans	$	15,449,555	8.26	%	$	11,817,708	8.03	%
FFELP Loans	1,003,128		3.69		1,103,253		3.42
Personal Loans	35,830		9.16		—		—
Total portfolio	$	16,488,513			$	12,920,961

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. We began acquiring Personal Loans in the fourth quarter of 2016.

Allowance for Loan Losses Metrics



	Allowance for Loan Losses
	Three Months Ended March 31, 2017
	FFELP Loans			Private Education Loans			Personal Loans			Total
Allowance for Loan Losses
Beginning balance	$	2,171		$	182,472		$	58		$	184,701
Total provision	(316		)	26,820			288			26,792
Net charge-offs:
Charge-offs	(218		)	(26,227		)	—			(26,445		)
Recoveries	—			3,259			—			3,259
Net charge-offs	(218		)	(22,968		)				(23,186		)
Loan sales⁽¹⁾	—			(1,221		)	—			(1,221		)
Ending Balance	$	1,637		$	185,103		$	346		$	187,086
Allowance:
Ending balance: individually evaluated for impairment	$	—		$	87,150		$	—		$	87,150
Ending balance: collectively evaluated for impairment	$	1,637		$	97,953		$	346		$	99,936
Loans:
Ending balance: individually evaluated for impairment	$	—		$	701,860		$	—		$	701,860
Ending balance: collectively evaluated for impairment	$	989,393		$	14,952,994		$	55,502		$	15,997,889
Net charge-offs as a percentage of average loans in repayment (annualized)⁽²⁾	0.11		%	0.89		%	—		%
Allowance as a percentage of the ending total loan balance	0.17		%	1.18		%	0.62		%
Allowance as a percentage of the ending loans in repayment⁽²⁾	0.22		%	1.76		%	0.62		%
Allowance coverage of net charge-offs (annualized)	1.88			2.01			—
Ending total loans, gross	$	989,393		$	15,654,854		$	55,502
Average loans in repayment⁽²⁾	$	771,435		$	10,265,530		$	35,830
Ending loans in repayment⁽²⁾	$	757,052		$	10,526,782		$	55,502

____________

⁽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.

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, 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.

SLM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Dollars in thousands, unless otherwise noted)



3.	Allowance for Loan Losses (Continued)

Troubled Debt Restructurings

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. We generally consider a loan that is in full principal and interest repayment status which has received more than three months of forbearance in a 24-month period to be a TDR; however, during the first nine months after a loan has entered full principal and interest repayment status, we do not count up to the first six months of forbearance received during that period against the three-month policy limit. 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 26 percent of the loans granted forbearance as of March 31, 2017 and December 31, 2016, respectively, have been classified as TDRs due to their forbearance status. For additional information, see Note 6, “Allowance for Loan Losses” in our 2016 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, 2017 and December 31, 2016, all 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, 2017
TDR Loans	$	712,019	$	701,860	$	87,150

December 31, 2016
TDR Loans	$	620,991	$	612,606	$	86,930

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



	Three Months Ended March 31,
	2017				2016
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized

TDR Loans	$	669,606	$	12,257	$	297,315	$	5,583

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 and aging of TDR loans.



	March 31,				December 31,
	2017				2016
	Balance		%		Balance		%
TDR loans in in-school/grace/deferment⁽¹⁾	$	32,121			$	24,185
TDR loans in forbearance⁽²⁾	78,791				71,851
TDR loans in repayment⁽³⁾ and percentage of each status:
Loans current	532,459		90.2	%	462,187		89.5	%
Loans delinquent 31-60 days⁽⁴⁾	29,733		5.0		28,452		5.5
Loans delinquent 61-90 days⁽⁴⁾	16,837		2.8		17,326		3.4
Loans delinquent greater than 90 days⁽⁴⁾	11,919		2.0		8,605		1.6
Total TDR loans in repayment	590,948		100.0	%	516,570		100.0	%
Total TDR loans, gross	$	701,860			$	612,606

_____


⁽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.

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 March 31, 2017						Three Months Ended March 31, 2016
	Modified Loans⁽¹⁾		Charge-offs		Payment- Default		Modified Loans⁽¹⁾		Charge-offs		Payment- Default

TDR Loans	$	112,206	$	10,523	$	25,526	$	61,006	$	4,968	$	25,671

_____


⁽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 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
	March 31, 2017				December 31, 2016
Credit Quality Indicators:	Balance⁽¹⁾		% of Balance		Balance⁽¹⁾		% of Balance

Cosigners:
With cosigner	$	14,097,920	90	%	$	12,816,512	90	%
Without cosigner	1,556,934		10		1,435,163		10
Total	$	15,654,854	100	%	$	14,251,675	100	%

FICO at Original Approval:
Less than 670	$	1,008,334	6	%	$	920,132	6	%
670-699	2,297,815		15		2,092,722		15
700-749	5,109,510		33		4,639,958		33
Greater than or equal to 750	7,239,195		46		6,598,863		46
Total	$	15,654,854	100	%	$	14,251,675	100	%

Seasoning⁽²⁾:
1-12 payments	$	4,233,778	27	%	$	3,737,110	26	%
13-24 payments	2,937,448		19		2,841,107		20
25-36 payments	1,951,479		12		1,839,764		13
37-48 payments	978,576		6		917,633		7
More than 48 payments	775,278		5		726,106		5
Not yet in repayment	4,778,295		31		4,189,955		29
Total	$	15,654,854	100	%	$	14,251,675	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)

Key Credit Quality Indicators

For Personal Loans, the key credit quality indicators are FICO scores 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 Personal Loan portfolio stratified by key credit quality indicators.



	Personal Loans
	Credit Quality Indicators
	March 31, 2017				December 31, 2016
Credit Quality Indicators:	Balance⁽¹⁾		% of Balance		Balance⁽¹⁾		% of Balance

FICO at Original Approval:
Less than 670	$	4,612	8	%	$	1,189	9	%
670-699	15,897		29		3,139		24
700-749	25,569		46		5,678		44
Greater than or equal to 750	9,424		17		2,888		23
Total	$	55,502	100	%	$	12,894	100	%

Seasoning⁽²⁾:
0-12 payments	$	55,502	100	%	$	12,894	100	%
13-24 payments	—		—		—		—
25-36 payments	—		—		—		—
37-48 payments	—		—		—		—
More than 48 payments	—		—		—		—
Total	$	55,502	100	%	$	12,894	100	%


⁽¹⁾	Balance represents gross Personal Loans.


⁽²⁾	Number of months in active repayment 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 or fixed payments, as well as loans that have entered full principal and interest repayment status after any applicable grace period.



	Private Education Loans
	March 31,					December 31,
	2017					2016
	Balance			%		Balance			%
Loans in-school/grace/deferment⁽¹⁾	$	4,778,295				$	4,189,955
Loans in forbearance⁽²⁾	349,777					351,962
Loans in repayment and percentage of each status:
Loans current	10,327,843			98.1	%	9,509,394			97.9	%
Loans delinquent 31-60 days⁽³⁾	112,167			1.1		124,773			1.3
Loans delinquent 61-90 days⁽³⁾	54,128			0.5		51,423			0.5
Loans delinquent greater than 90 days⁽³⁾	32,644			0.3		24,168			0.3
Total Private Education Loans in repayment	10,526,782			100.0	%	9,709,758			100.0	%
Total Private Education Loans, gross	15,654,854					14,251,675
Private Education Loans deferred origination costs	46,692					44,206
Total Private Education Loans	15,701,546					14,295,881
Private Education Loans allowance for losses	(185,103		)			(182,472		)
Private Education Loans, net	$	15,516,443				$	14,113,409
Percentage of Private Education Loans in repayment				67.2	%				68.1	%
Delinquencies as a percentage of Private Education Loans in repayment				1.9	%				2.1	%
Loans in forbearance as a percentage of Private Education Loans in repayment and forbearance				3.2	%				3.5	%


⁽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, 2017	$	825,680	$	1,108	$	2,868
December 31, 2016	$	739,847	$	845	$	2,898

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, 2017 and December 31, 2016.



	March 31,		December 31,
	2017		2016
Deposits - interest bearing	$	13,360,698	$	13,434,990
Deposits - non-interest bearing	1,173		677
Total deposits	$	13,361,871	$	13,435,667

Interest bearing deposits as of March 31, 2017 and December 31, 2016 consisted of retail non-maturity savings deposits, retail and brokered non-maturity money market deposits (“MMDAs”) and brokered and retail certificates of deposit (“CDs”). Interest bearing deposits include deposits from Educational 529 and Health Savings plans that diversify our funding sources and add deposits we consider to be core. These and other large omnibus accounts, aggregating the deposits of many individual depositors, represented $5.4 billion of our deposit total as of March 31, 2017.

Some of 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 $2.1 million and $2.6 million in the three months ended March 31, 2017 and 2016, respectively. Fees paid to third-party brokers related to brokered CDs were $2.1 million and $2.8 million for the three months ended March 31, 2017 and 2016, respectively.

Interest bearing deposits at March 31, 2017 and December 31, 2016 are summarized as follows:



	March 31, 2017				December 31, 2016
	Amount		Qtr.-End Weighted Average Stated Rate⁽¹⁾		Amount		Year-End Weighted Average Stated Rate⁽¹⁾

Money market	$	7,187,495	1.37	%	$	7,129,404	1.22	%
Savings	857,980		0.94		834,521		0.84
Certificates of deposit	5,315,223		1.58		5,471,065		1.41
Deposits - interest bearing	$	13,360,698			$	13,434,990

____________

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

As of March 31, 2017 and December 31, 2016, there were $304.6 million and $304.5 million, respectively, of deposits exceeding Federal Deposit Insurance Corporation (“FDIC”) insurance limits. Accrued interest on deposits was $22.9 million and $18.9 million at March 31, 2017 and December 31, 2016, respectively.

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, 2017 and December 31, 2016.

March 31, 2017

December 31, 2016

Short-Term

Long-Term

Total

Short-Term

Long-Term

Total

Secured borrowings:

Private Education Loan term securitizations

—